10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2000

File No. 0-14968

EATERIES, INC.
(Exact name of registrant as specified in its charter)
Oklahoma	73-1230348
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1220 South Santa Fe Avenue Edmond, Oklahoma	73003
(Address of principal executive offices)	(Zip code)
(405) 705-5000
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value, $.002 per share

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No_____

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. ( )

The aggregate market value of the voting common stock held by non-affiliates of the registrant as of March 6, 2001, was $6,123,556. The registrant has assumed that its directors and officers are the only affiliates, for purposes of this calculation. As of March 6, 2001, the registrant had 2,947,918 shares of common stock outstanding.

EATERIES, INC. FORM 10-K For the Fiscal Year Ended December 31, 2000 TABLE OF CONTENTS
PART I	Page
Item 1. Business	1
Item 2. Properties	9
Item 3. Legal Proceedings	9
Item 4. Submission of Matters to a Vote of Security Holders	9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters	10
Item 6. Selected Financial Data	11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations	12
Item 8. Financial Statements and Supplementary Data	21
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	21
PART III
Item 10. Directors and Executive Officers of the Registrant	21
Item 11. Executive Compensation	21
Item 12. Security Ownership of Certain Beneficial Owners and Management	21
Item 13. Certain Relationships and Related Transactions	21
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K	22
INDEX TO EXHIBITS	23
SIGNATURES	24
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS	25

ITEM 1. BUSINESS

In General

Eateries, Inc. (the "Company") and its subsidiaries own, operate and franchise restaurants under the names: Garfield's Restaurant & Pub ("Garfield's"), Garcia's Mexican Restaurants ("Garcia's") and Pepperoni Grill. As of December 31, 2000, the Company owned 69 (50 Garfield's, 17 Garcia's and 2 Pepperoni Grills) and franchised or liscensed 8 (7 Garfield's and 1 Garcia's) restaurants in 27 states.

The Company opened its first restaurant, a Garfield's, in 1984 in Oklahoma City, Oklahoma. In 1986, the Company completed an initial public offering of its common stock. Prior to 1997, Garfield's was the Company's primary restaurant concept. Garfield's is a family-oriented concept, providing an upscale alternative to traditional fast food. Garfield's are designed to appeal to a divergent customer base that grew up on fast food, but now prefers a more sophisticated menu, the availability of alcoholic beverages, a comfortable ambiance, speed, value and convenience. The concept features a varied selection of moderately priced, high quality food and beverage items with table service dining.

In January 1995, the Company acquired substantially all the assets of the "Pepperoni Grill" restaurant located in Oklahoma City, Oklahoma, along with all rights to the use of the trademarks associated with the concept. Pepperoni Grill features a variety of Northern Italian entrees with special emphasis on brick-oven baked pizza .

In November 1997, the Company, through its wholly owned subsidiary, Fiesta Restaurants, Inc., acquired 17 Mexican restaurants under the names: Garcia's (10), Casa Lupita (5) and Carlos Murphy's (2), along with the trademarks associated with these concepts. In February 1998, the Company sold three of the Casa Lupita locations to Chevy's, Inc. ("Chevy's"). In connection with this transaction, the Company entered into an agreement to sell another Casa Lupita location to Chevy's. This second transaction closed in May 1998. The decision to sell these restaurants was the result of a plan to consolidate operations and focus on the expansion of Garcia's. During 1998, the Company closed its one remaining Casa Lupita and converted one of its Carlos Murphy's to a Garcia's.

In 1998, the Company constructed and opened two Garfield's in major regional malls and one Garcia's concession operation at the Bank One Ball Park in Phoenix, Arizona. Additionally, the Company acquired three formerly franchised Garfield's in July 1998. The Company's future expansion of its existing concepts will be primarily focused on Garfield's and Garcia's. In 1999 the Company constructed and opened four Garfield's, one Garcia's and acquired two Bellini's and one Tommy's. In 2000 the Company constructed and opened one Garfield's and three Garcia's, converted one Carlos Murphy's to a Garcia's and sold the two Bellini's and one Tommy's it acquired in 1999. The Company expects to add one additional Garfield's and two additional Garcia's restaurants in 2001. Management expects its primary expansion emphasis will begin to change to franchised rather than Company-owned restaurants. The Company may also pursue other acquisitions to further enhance shareholder value.

The Company's principal offices are located at 1220 South Santa Fe Avenue, Edmond, Oklahoma 73003. Its telephone number is (405) 705-5000.

Garfield's Restaurant & Pub

Menu

Each Garfield's restaurant offers a diverse menu of freshly prepared traditional and innovative entrees, including steaks, seafood, chicken, hamburgers, Mexican, Italian, and sandwiches along with a variety of appetizers, salads and desserts. The Company revises menu offerings semi-annually to improve sales. The Company's senior management actively participates in the search for new menu items. Garfield's also offers a separate lower-priced children's menu.

Restaurant Layout

Historically the majority of Garfield's restaurants have been constructed in regional malls in accordance with uniform design specifications and are generally similar in appearance and interior decor. Over the last two years the Company has begun to develop freestanding locations as well. Both the freestanding and mall restaurants are furnished and styled in a colorful motif, highlighting the travels of the Company's namesake, "Casey Garfield", including exhibits, photographs, souvenirs and other travel-related furnishings. Tables are covered with paper and customers are encouraged to doodle with crayons provided at each table. During 2000 the Company and a Franchisee each opened one new freestanding Garfield's.

The size and shape of Garfield's restaurants vary depending upon the location but typically average 4,500 to 5,500 square feet, and seat approximately 200 guests.

Hours of Operation

Depending on location, most restaurants are open from 11:00 a.m. until 11:00 p.m. on weekdays and Sunday, and later on Friday and Saturday.

Unit Economics

Historically, the cost of opening a new Garfield's restaurant has varied widely due to the different restaurant configuration and sizes, regional construction cost levels, and certain other factors. The Company currently leases restaurant premises in existing freestanding facilities as well as in major regional malls and builds-out the leased space to meet the Garfield's concept specifications of style and decor. Gross construction costs for a typical Garfield's opened in 2000 and 1999 were approximately $920,000 and $802,000, respectively. However, landlord's typically provide substantial tenant construction allowances (approximately $450,000 in 2000 and $400,000 in 1999). After tenant allowances the Company's net investment was approximately $470,000 and $402,000 per unit for 2000 and 1999, respectively.

Site Selection

All Garfield's restaurants are located in regional shopping malls and freestanding buildings, primarily in the eastern half of the United States. The Company considers the location of a restaurant to be critical to its long-term success and has devoted significant effort to the investigation and evaluation of potential mall sites. The mall site selection process focuses on historical sales per foot by mall tenants and proximity to entertainment centers within and near the mall as well as accessibility to major traffic arteries. The Company also reviews potential competition in the area and utilizes site selection models to evaluate each potential location based upon a multitude of different criteria. Senior management inspects and approves each restaurant site. It takes approximately 18 weeks to complete construction and open a Garfield's.

Market Concentration

Although Garfield's are spread primarily throughout the eastern half of the United States there are areas of concentration. These areas allow the Company to use advertising dollars in an effective way. In the future as franchises build out market areas this will assist the marketing and advertising effectiveness by targeting areas of concentration.

Restaurant Locations

The following table sets forth the locations of the existing Garfield's as of December 31, 2000.

Company-Owned Restaurants		Franchised Restaurants
State	No. of Units	State	No. of Units
Alabama	2	Indiana	3
Arkansas	1	Iowa	2
Florida	3	Oklahoma	2
Georgia	1	Total	7
Illinois	4		===
Indiana	4
Kentucky	1
Maryland	1
Michigan	2
Mississippi	4
Missouri	4
New York	2
North Carolina	2
Ohio	3
Oklahoma	5
Pennsylvania	1
South Carolina	2
Tennessee	1
Texas	2
West Virginia	3
Wisconsin	2
Total	50
	===

Garcia's Mexican Restaurants

In November 1997, the Company, through its wholly-owned subsidiary, Fiesta Restaurants, Inc. ("Fiesta"), acquired from Famous Restaurants, Inc. and its subsidiaries ("Famous"), substantially all of the assets comprising 17 Mexican restaurants and the corporate headquarters of Famous (the "Famous Acquisition"). The acquired restaurants operated under the names: Garcia's (ten), Casa Lupita (five) and Carlos Murphy's (two). The purchase price for the assets was approximately $10,859,000, of which $8,631,415 was paid in cash at closing and the balance represented estimated liabilities of Famous assumed by the Company and transaction costs. The cash portion of the purchase price was financed through a five-year term loan with a bank. As of December 31, 2000 the Company has 17 Garcia's and no longer has any restaurants using the Casa Lupita or Carlos Murphy's name. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" for a complete description of these loans.

Menu

Each Garcia's restaurant offers a traditional menu of high quality Mexican food. Alcoholic beverages are also offered in each location. Menus are generally standardized, although there are slight variations to accommodate regional taste preferences.

Restaurant Layout

Garcia's restaurants have a distinctive southwestern design and decor. The existing freestanding restaurants generally measure 5,000 to 10,000 square feet and seat approximately 200 to 250 guests in the main dining area with an additional 75 to 125 seats in the bar area. However in 2000 the Company built two new Garcia's in malls and has one other under construction. These mall-based locations are between 4,800 and 6,200 square feet.

Restaurant Locations

The following table sets forth the locations of the existing Garcia's as of December 31, 2000.

Company-Owned Restaurants		Franchised Restaurants
State	No. of Units	State	No. of Units
Arizona (1)	9	Iowa	1
California	1	Total	1
Colorado	2		===
Florida	1
Idaho	1
Oklahoma	2
Utah	1
Total	17
	===
(1) Includes Bank One Ball Park Concession

Pepperoni Grill

The Company purchased the original Pepperoni Grill restaurant, located in Oklahoma City, Oklahoma, in January 1995. Its menu features a variety of Northern Italian entrees with special emphasis on brick-oven baked pizza. The warm European bistro atmosphere is accented with an exhibition kitchen, light foods and booths covered in tapestry. All menu items are prepared on the premises with the entire entree presentation being performed within view of the guest, making the kitchen part of the restaurant's atmosphere. An in-store bakery makes all the breads and daily desserts. Pepperoni Grill's signature bakery item is a Tuscan Parmesan black pepper bread that is served with all entrees along with traditional olive oil and balsamic vinegar. Over 60 different wine selections are offered along with 25 wines available by the glass. In 1996 management opened a freestanding Pepperoni Grill in Edmond, Oklahoma, to capitalize on its strong reputation in the Oklahoma City market.

Bellini's Restaurants and Tommy's Italian-American Grill

In May 1999, the Company through its wholly owned subsidiary, Roma Foods, Inc., acquired substantially all of the assets comprising two Bellini's Restaurants and one Tommy's Italian-American Grill. Both Bellini's and Tommy's feature Italian cuisine prepared fresh daily and were well-known, well-established restaurants in the Oklahoma City area. In December 2000, the founder of Bellini's and Tommy's, Tommy Byrd, purchased the restaurants back from the Company. The sale was primarily due to the Company's new focus on franchising Garfield's and the decision not to currently grow the Bellini's concept.

RESTAURANT OPERATIONS

Management And Employees

Responsibility for the Company's restaurant operations is organized geographically with restaurant general managers reporting to area directors of operations who, in turn, report to the respective Regional Directors of Operations for Garfield's, Garcia's and Pepperoni Grill. A typical restaurant has a general manager, two to four assistant managers and average 52 employees, approximately 72% of who are part-time.

Regional Directors of Operations, Area Directors of Operations as well as restaurant general managers and associate managers are eligible for cash and stock bonuses, travel incentives, professional training and attendance at industry conferences. Receipt of these incentives is based on reaching restaurant performance objectives. The Company's hourly employees are eligible for performance-based awards for superior service to the Company and its guests. Employee awards can include travel incentives, gift certificates, plaques and Company memorabilia. Most employees other than restaurant management and corporate management are compensated on an hourly basis.

Quality Control

The Company has uniform operating standards and specifications relating to the quality, preparation and selection of menu items, maintenance and cleanliness of the premises, and employee conduct. Managers are responsible for assuring compliance with Company operating procedures. Executive and supervisory personnel routinely visit each restaurant to evaluate adherence to quality standards and employee performance.

Training

The Company has instituted "The Best in Town" program which places a great deal of emphasis on the proper training of its hourly employees and general and associate managers. To insure our restaurants are "The Best in Town", all training is tailored to ensure our guests receive the best experience we can offer in our restaurants. This commitment to quality food and service demands both traditional and creative training techniques. The Company employs a full time corporate training staff to oversee all areas of employee education. The outline for the training programs is based on the individual expertise of the trainee and typically lasts about two weeks for hourly employees and up to eight weeks for managers. Managers are certified in a number of skills in restaurant management, including technical proficiency and job functions, management techniques and profit and loss responsibilities. The Company sponsors further management training and certification in food safety using the ServeSafe program as developed by the National Restaurant Association Educational Foundation. Skills are taught primarily in the restaurant along with classroom training and assigned projects. Management training is performed in several geographically dispersed restaurants and includes further training at our corporate offices. The Company provides standard manuals regarding training and operations, products and equipment and local marketing programs.

Employee Conduct

The Company maintains a no tolerance policy on harassment or discrimination of any kind. The managers and employees of the Company are required to acknowledge and obey these policies at all times. The Company maintains the right to terminate any employee for violation of its harassment or discrimination policies as well as any conduct that is inappropriate, at any time.

Purchasing

The Company employs a purchasing director to oversee the relations and negotiations with manufacturers and regional distributors for most food and beverage products and to ensure uniform quality, competitive costs and adequate supplies of proprietary products. The Company and its franchisees purchase substantially all food and beverage products from several national and regional suppliers. The Company has not experienced any significant delays in receiving food and beverage inventories or restaurant supplies.

Advertising and Marketing

Marketing at Eateries Inc. is focused on enhancing the guest experience in all of our concepts. We develop marketing plans to improve guest satisfaction in the areas of food, value and service. We offer a broad range of products our guests' desire while striving to deliver the food in a fast, friendly manner. Utilizing multiple mediums such as television, local cable television, radio, outdoor and print advertising, we are able to deliver our messages to the guests in the most efficient way. Our restaurant managers are also encouraged to be involved in the community and to use proven local store marketing programs to drive their individual business. In markets where the Company shares a trade area with a franchisee, advertising cooperatives are utilized to maximize the Company's restaurant's visibility. Franchisees of Garfield's units are generally required to expend up to 4% of sales on restaurant related marketing efforts. In addition, all Company and franchise restaurants contribute 1/2% of their sales to a marketing fund used to produce advertising, menu development and point-of-sale material to promote increased sales. The Company engages in a variety of local market promotional activities such as contributing goods, time and money to charitable, civic and educational programs, in order to increase public awareness of the Company's restaurants.

Restaurant Reporting

Financial controls are implemented through the use of computerized point of sales and management information systems. Sales reports and food, beverage and labor cost data are prepared and reviewed weekly for operational control. The Company has implemented new systems to streamline the flow of sales, payroll and accounts payable information and has continued to enhance these systems in 2000 and will continue in 2001.

MANAGEMENT INFORMATION SYSTEM

The Company in a concerted effort to enhance its accounting and information systems hired Jaroslav Lajos as Director of Management Information Systems in 1999. Mr. Lajos has completed his class work at Oklahoma State University related to a PhD. in computer science, and is in the process of writing his thesis. Currently Mr. Lajos is creating designing, writing and implementing several new computer software programs designed to advance the Company with MIS technology in the future. The Company believes that some of the computer programs in development may be marketable.

EXPANSION STRATEGY

The Company expects that it's primary expansion emphasis will gradually shift from constructing new Company-owned restaurants to franchise development.

The Company customarily opens Garfield's restaurants in regional malls principally throughout the eastern half of the United States. This expansion strategy is designed to capitalize on the growing trend to include and expand dining and entertainment facilities in regional malls. Management believes this mall-based expansion strategy for Garfield's reduces the risks associated with locating restaurants in new markets because of the availability of historical trends regarding mall sales and customer traffic. Further, restaurant construction within a mall typically requires a lower investment than construction of a freestanding restaurant. The Company expects to develop a new prototype freestanding building and explore the possibility of converting freestanding locations.

Management believes there are sufficient additional mall and freestanding locations for its restaurant concepts, particularly with the large number of existing closed or failing competitor's buildings, along with existing malls expanding and remodeling with a view toward becoming entertainment and dining centers. The Company maintains relationships with several leading mall operators who provide the Company with an ongoing supply of potential mall locations for evaluation.

The Company customarily opens Garcia's in freestanding and regional mall sites primarily in its core operating area in and around Phoenix, Arizona and Oklahoma City, Oklahoma. This strategy capitalizes on the strong reputation of the Garcia's concept in the Phoenix area and will allow the Company to expand closer to its Oklahoma base of operation.

In 2000 the Company opened two new Garcia's in Oklahoma, in addition to converting one Carlos Murhpy's in Tuscon, Arizona to a Garcia's. The Company also opened one new Garfield's in Maryland and relocated one Garfield's in Shawnee, Oklahoma to an existing freestanding building.

Subsequent to December 31, 2000, the Company has opened a third new Garcia's in Oklahoma City, Oklahoma, and is currently developing a new Garfield's in Butler, Pennsylvania and a Garcia's in Joplin, Missouri. The Company doesn't expect to develop or open any other company owned restaurants in 2001. In addition, management is actively seeking possible merger or acquisition candidates that it believes will add value to the Company. The Company also expects approximately 3 franchised Garfield's will be opened in 2001.

FRANCHISE OPERATIONS

General Terms

As of December 31, 2000, seven franchised Garfield's were operating pursuant to agreements granted by the Company. The typical Garfield's franchise agreement provides for (i) the payment of an initial franchise fee of $30,000 and a monthly continuing royalty fee expressed as a percentage (typically 3.0% or 4%) of gross sales with a minimum fee of $2,500 to $3,000 per month; (ii) the payment of 1/2% of gross sales to the Garfield's Creative Marketing Fund; (iii) quality control and operational standards; (iv) development obligations for the opening of new restaurants under the franchise; and (v) the creation and use of advertising. The franchise term is for ten years with five-year renewals. The grant of a franchise does not ensure that a restaurant will be opened. Under the Company's typical franchise agreement, the failure to open restaurants can cause a termination of the franchise. Although the Company largely relies upon standardized agreements for its franchises, it will continue to adjust its agreements as circumstances warrant.

As of December 31, 2000, there was one licensed Garcia's restaurants. The license agreement provides for the monthly payment of continuing royalties of 1.5% of gross sales.

Future Franchise Development

In 1999, the Company hired Laurence Bader as Vice President of Franchising. Mr. Bader formerly held a similar position at KFC and more recently at Applebee's. The Company finalized a new franchise program and updated franchise and development agreements for Garfield's Restaurant and Pubs. The uniform franchise offering circular (called the UFOC that contains the franchise and development agreement) was registered nationally in 2000, and since registration the Company has aggressively pursued franchise development.

In 2000 the Company began its aggressive marketing of franchises under the UFOC registered during the year. The Company signed commitments for twenty-five franchise restaurants in 2000, and one new freestanding franchise restaurant was opened in October of the year. The twenty-five franchise restaurants committed to during the year include twelve in Florida, ten in Nebraska and three in Indiana.

Subsequent to December 31, 2000, and through the date of this report, the Company signed an additional ten restaurant franchise development agreement related to the Las Vegas, Nevada market.

Franchise Revenue Data

The following table sets forth fees and royalties earned by the Company from franchisees for the years indicated:

	2000	1999	1998
Initial franchise fees	$ 161,000	$  35,000	$  35,000
Continuing royalties	274,000	282,000	323,000
Total	$ 435,000	$ 317,000	$ 358,000
	=======	=======	=======

Compliance with Franchise Standards

All franchisees are required to operate their restaurants in compliance with the Company's methods, standards and specifications regarding such matters as menu items, ingredients, materials, supplies, services, fixtures, furnishings, decor and signs, although the franchisee has the discretion to determine the menu prices to be charged. However, as a practical matter, all franchisees utilize the Company's standardized menu. In addition, all franchisees are required to purchase all food, ingredients, supplies and materials from suppliers approved by the Company. These standards are addressed in the UFOC agreement and the Company enforces the standards required of franchisees. Such enforcement may result in the closure or non-renewal of certain franchise units, but any such closings or non-renewals are not expected to have a material adverse effect upon the Company's results of operations or financial position.

RECENT DEVELOPMENTS

In January 2001, the Company purchased 67,500 shares of its common stock in a private transaction for an aggregate purchase price of approximately $143,000.

COMPETITION

The restaurant industry is intensely competitive with respect to price, service, location, food type and quality. There are many well-established competitors with substantially greater financial and other resources than the Company. Some of the Company's competitors have been in existence for substantially longer periods than the Company and may be better established in the market area than the Company's restaurants. The restaurant business is often affected by changes in consumer taste, national, regional or local economic conditions, demographic trends, traffic patterns and type, number and location of competing restaurants. In addition, factors such as inflation, increased food, labor and benefit costs, and the lack of experienced management and hourly employees may adversely affect the restaurant industry in general and the Company's restaurants in particular.

SERVICE MARKS

"GARFIELD'S", "CASEY GARFIELD'S", "PEPPERONI GRILL", "GARCIA'S", "CASA LUPITA" and "CARLOS MURPHY'S", AND "BELLINI'S RISTORANTE" are Company service marks registered with the United States Patent and Trademark Office. The Company pursues any infringement of its marks within the United States and considers its marks to be crucial to the success of its operations. The "Bellini's Ristorante" pertains to the use of the name and mark outside of Texas and Oklahoma. The Company has no locations open at this time using "Casa Lupita", "Carlos Murphy's" or "Bellini's Ristorante" trade names.

EMPLOYEES

As of December 31, 2000, the Company employed 3,786 individuals, of whom 276 were management or administrative personnel (including 222 who were restaurant managers or trainees) and 3,510 were employed in non-management restaurant positions. As of this date, the Company employed 266 persons on a salaried basis and 3,520 persons on an hourly basis. Each restaurant employs an average of 52 people.

Most employees, other than restaurant management and corporate management personnel, are paid on an hourly basis. The Company believes that it provides working conditions and wages that compare favorably with those of its competition. As the Company expands, it will need to hire additional management and its continued success will depend in large part on its ability to attract and retain good management employees. The Company's employees are not covered by a collective bargaining agreement.

SEASONALITY

With 52 of the 69 Company-owned restaurants located in regional malls as of December 31, 2000, the resulting higher pedestrian traffic during the Thanksgiving to New Year holiday season has caused the Company to experience a substantial increase in food and beverage sales and profits in the Company's fourth and first fiscal quarters. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Impact of Seasonality."

GOVERNMENT REGULATIONS

The Company's restaurants are subject to licensing and regulation by alcoholic beverage control, health, sanitation, safety and fire agencies in each state and/or municipality in which restaurants are located. The Company has not experienced material difficulties in these areas, however, regulatory difficulties or failures in obtaining the required licenses or approvals could delay or prevent the opening of a new restaurant and affect profitability.

Approximately 13% of the Company's food and beverage revenues in 2000 were attributable to the sale of alcoholic beverages. Alcoholic beverage control regulations require each of the Company's restaurants to apply to a state authority and, in certain locations, county or municipal authorities, for a license or permit to sell alcoholic beverages on the premises and to provide service for extended hours and on Sundays. Typically, such licenses or permits must be renewed annually and may be revoked or suspended for cause at any time. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of the Company's restaurants, including minimum age of patron and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling, storage and dispensing of alcoholic beverages.

In certain states the Company may be subject to "dram-shop" statutes, which generally provide a person injured by an intoxicated patron the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. The Company carries liquor liability coverage as part of its existing comprehensive general liability insurance.

The Company's restaurant operations are also subject to federal and state laws governing such matters as minimum wages, working conditions, overtime and tip credits. Significant numbers of the Company's food service and preparation personnel are paid at rates equal to or based upon the federal minimum wage and, accordingly, further increases in the minimum wage could increase the Company's labor costs. The enactment of future legislation increasing employee benefits, such as mandated health insurance, could also significantly adversely affect the industry and the Company, as could future increases in workers' compensation rates.

The Company is subject to Federal Trade Commission ("FTC") regulation and state laws that regulate the offer and sale of franchises. The Company may also become subject to state laws that regulate substantive aspects of the franchisers/franchisee relationship. The FTC requires the Company to furnish prospective franchisees a franchise offering circular containing prescribed information. A number of states in which the Company might consider franchising also regulate the offer and sale of franchises and require registration of the franchise offering with state authorities. The Company believes that it is in material compliance with such laws.

The Americans with Disabilities Act ("ADA") prohibits discrimination in employment and public accommodations on the basis of disability. While the Company believes it is in substantial compliance with the ADA regulations, the Company could be required to expend funds to modify its restaurants to provide service to, or make reasonable accommodations for the employment of disabled persons.

ITEM 2. PROPERTIES

All of the Company's facilities are occupied under leases. The majority of the Company's restaurant leases provide for the payment of base rents plus real estate taxes, insurance and other expenses and for the payment of a percentage of the Company's sales in excess of certain sales levels. These leases typically provide for escalating rentals in future years and have initial terms expiring as follows:

Year Lease Term Expires	No. of Facilities
2001-2002	14
2003-2004	12
2005-2006	12
2007-2008	13
2009-2010	16
2011-2012	1
2013 and beyond	2

ITEM 3. LEGAL PROCEEDINGS

On September 8, 1998, Kelly R. Broussard, a former employee of the Company, filed a charge of discrimination with the Louisiana Human Rights Commission alleging sexual harassment and constructive discharge against the Company. Her position statement and request for information were submitted to the Equal Employment Opportunity Commission on November 12, 1998. Ms. Broussard's attorney made an offer of settlement to the Company in the amount of $575,000, which the Company rejected. Subsequently, Ms. Broussard filed a lawsuit for discrimination against the Company. In February 2001 this matter was settled for $10,000 by the Company.

In 1999 the Company filed suit against one of its food purveyors in federal court. This suit stems from the receipt of contaminated food product that the Company's management believe caused a food borne illness outbreak at the Company's Garcia's Mexican restaurants in the Phoenix, Arizona area in July of 1998. The suit proceeded through 2000 and continues to be litigated. The amount of financial recovery as a result of this litigation is undetermined at this time.

The Company has other lawsuits pending but does not believe the outcome of the lawsuits, individually or collectively will materially impair the Company's financial and operational condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of the Company's security holders during its fourth fiscal quarter of 2000.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY

AND RELATED STOCKHOLDER MATTERS

The Company's common stock has been quoted on the NASDAQ National Market System under the symbol "EATS" since May 1994. Prior to that date, the Company's common stock was quoted on the NASDAQ Small-Cap Market. The following table sets forth, for the quarterly periods indicated, the high and low sales price for the common stock, as reported by the NASDAQ Markets.

	Low	High
1998
First Quarter	$3.38	$6.09
Second Quarter	5.25	9.00
Third Quarter	4.06	8.00
Fourth Quarter	4.50	6.13
1999
First Quarter	$3.75	$6.31
Second Quarter	3.13	4.16
Third Quarter	2.75	4.00
Fourth Quarter	2.03	3.13
2000
First Quarter	$2.25	$3.63
Second Quarter	2.50	4.44
Third Quarter	3.88	4.79
Fourth Quarter	2.00	4.16
2001
First Quarter (March 6)	$2.00	$3.38

On March 6, 2001, the Company's stock transfer agent reported that the Company's common stock was held by 187 holders of record. However, management believes there are in excess of 1,000 beneficial owners of the Company's common stock.

The Company has paid no cash dividends on its common stock. The Board of Directors intends to retain earnings of the Company to support operations and to finance expansion and does not intend to pay cash dividends on the common stock for the foreseeable future. The payment of cash dividends in the future will depend upon such factors as earnings levels, capital requirements, level of debt, the Company's financial condition and other factors deemed relevant by the Board of Directors.

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected financial data of the Company. The selected financial data in the table are derived from the consolidated financial statements of the Company. The following data should be read in conjunction with, and is qualified in its entirety by, the Company's consolidated financial statements and related notes and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein. All amounts are reported in thousands except for per share amounts.

	2000	1999	1998	1997	1996
Income Statement Data:
Revenues:
Food and beverage sales	$103,480	$  93,846	$  88,190	$  62,851	$  55,733
Franchise fees and royalties	435	319	358	268	265
Other income	690	413	637	423	418
	104,605	94,578	89,185	63,542	56,416
Costs and Expenses:
Costs of sales	28,319	25,841	24,261	17,840	17,070
Operating expenses	63,473	57,779	53,824	36,795	32,219
Pre-opening costs	790	691	535	279	726
General and administrative expenses	5,806	5,968	5,548	4,049	3,666
Provision for impairment of long-lived assets	340	300	41	85	---
Depreciation and amortization	3,889	3,377	2,964	2,216	1,886
Interest expense	974	776	410	310	194
	103,591	94,732	87,583	61,574	55,761
Income (loss) before provision (benefit) for income     taxes	1,014	(154)	1,602	1,968	655
Provision for (benefit from) income taxes	(103)	(116)	419	569	74
Net income (loss)	$       911	$        (38)	$    1,183	$    1,399	$       581
Net income (loss) per common share	$      0.30	$     (0.01)	$      0.30	$      0.36	$      0.15
Net income per common share assuming dilution	$      0.29	$     (0.01)	$      0.28	$      0.35	$      0.15
Weighted average common shares	3,044	3,151	3,942	3,869	3,836
Weighted average common shares       assuming dilution	3,145	3,151	4,177	3,988	4,002
Balance Sheet Data (at end of period):
Working capital (deficit)	$ (11,039)	$   (8,320)	$   (3,360)	$   (4,844)	$   (3,456)
Total assets	$  33,102	$  31,090	$  25,820	$  29,775	$  18,709
Long-term debt obligations	$    8,440	$    9,092	$    3,409	$    7,637	$    1,471
Stockholders' equity	$    8,099	$    7,319	$  12,451	$  10,993	$    9,650
Other Data:
Cash provided by operating activities	$    5,354	$    7,497	$    2,945	$    4,977	$    2,438
Cash (used in) provided by investing activities	$   (6,338)	$   (7,516)	$    1,566	$ (11,182)	$   (4,283)
Cash (used in) provided by financing activities	$      (383)	$       964	$   (4,545)	$    6,841	$    1,539
Earnings before interest, taxes, depreciation and         amortization (EBITDA) (1)	$    5,877	$    4,000	$    4,977	$    4,493	$    2,736
System-wide sales (2)	$112,217	$102,665	$  98,923	$  71,133	$    4,036

1. EBITDA is calculated by adding the following to GAAP net income: interest expense, provision/benefit for income taxes and depreciation and amortizaion. EBITDA is not a calculation provided by GAAP and similarly is not an alternative to operating income or net income and is not a measure of liquidity. Additionally, EBITDA may be calculated differently by other companies sharing the same industry as Eateries, Inc.
2. System-wide sales include annual Company sales and annual sales as reported to the Company by its franchisees and licensees. Franchisee and licensee gross sales are not included in revenues in the consolidated financial statements and are not GAAP revenue for Eateries, Inc.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

From time to time, the Company may publish "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Some examples of forward-looking statements are statements related to anticipated financial performance, business prospects, the future opening of Company-owned and franchised restaurants, anticipated capital expenditures, future liquidity and capital resource needs, and other matters. In addition, forward-looking statements often (though not always) may be identified by the use of such terms as "may", "will", "expect", "intend", "project", "estimate", "anticipate", "believe", "think", "continue" or variations of such terms and similar terminology. All statements other than statements of historical fact contained in this Form 10-K or in any other report of the Company are forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of that safe harbor, the Company notes that a variety of factors, individually or in the aggregate, could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements including, without limitation, the following: consumer spending trends and habits; competition in the casual dining restaurant segment; weather conditions in the Company's operating regions; laws and government regulations; general business and economic conditions; availability of capital; success of operating initiatives and marketing and promotional efforts; and changes in accounting policies. In addition, the Company disclaims any intent or obligation to update those forward-looking statements. However, the Company may be required to amend its filings if information becomes materially misleading.

INTRODUCTION

As of December 31, 2000, the Company owned and operated 69 (50 Garfield's, 17 Garcia's, 2 Pepperoni Grills) and franchised or licensed 8 (7 Garfield's and 1 Garcia's) restaurants. The Company currently has 1 Garfield's and one Garcia's in development. As of the date of this report, the entire system includes 67 (48 Garfield's, 17 Garcia's, 2 Pepperoni Grills) Company-owned restaurants and 7 (6 Garfield's and 1 Garcia's) franchised or licensed restaurants.

Percentage Results of Operations and Restaurant Data

The following table sets forth, for the periods indicated, (i) the percentages that certain items of income and expense bear to total revenues, unless otherwise indicated, and (ii) selected operating data:

	Fiscal Year
	2000	1999	1998
Income Statement Data:
Revenues:
Food and beverage sales	98.9%	99.2%	98.9%
Franchise fees and royalties	0.4	0.3	0.4
Other income	0.7	0.5	0.7
	100.0	100.0	100.0
Costs and Expenses:
Costs of sales (1)	27.4	27.5	27.5
Operating expenses (1)	61.3	61.6	61.0
Pre-opening costs (1)	0.8	0.7	0.6
General and administrative expenses	5.6	6.3	6.2
Provision for impairment of long-lived assets	0.3	0.3	0.0
Depreciation and amortization (1)	3.8	3.6	3.4
Interest expense	0.9	0.8	0.5
	=====	=====	=====
Income before provision for (benefit from) income taxes	1.0	(0.02)	1.8
Provision for (benefit from) income taxes	0.1	(0.01)	0.5
Net income (loss)	0.9%	(0.01)%	1.3%
Selected Operating Data: (Dollars in thousands)
System-wide sales:
Company restaurants	$103,480	$93,846	$88,190
Franchise restaurants	8,737	8,819	10,733
Total	$112,217	$102,665	$98,923
	======	======	======
Number of restaurants (at end of period):
Company restaurants	69	69	64
Franchise restaurants	8	9	8
Total	77	78	72
	====	====	====
(1) As a percentage of food and beverage sales.

IMPACT OF SEASONALITY

The concentration of restaurants in regional malls, where customer traffic increases substantially during the Thanksgiving to New Year holiday season, has resulted in the Company experiencing a substantial increase in restaurant sales and profits during the fourth quarter of each year. However, as a result of the acquisition of 17 freestanding Mexican restaurants from Famous and by the three Italian restaurants, the Company's management believes that its revenues and profits will be less affected by seasonality in the future. The following table presents the Company's revenues, net income (loss) and certain other financial and operational data for each fiscal quarter of 2000, 1999 and 1998.

		Fiscal Quarters
			1st	2nd	3rd	4th	Annual
		(In thousands except per share amounts)
2000:
	Revenues		$  25,108	$  24,797	$  25,069	$  29,631	$104,605
	Net income (Loss)		324	(181)	(249)	1,017	911
	Net income (Loss) per common share		0.11	(0.06)	(0.08)	0.33	0.30
	Net income per common share      assuming dilution		0.10	(0.06)	(0.08)	0.32	0.29
	Weighted average common shares		2,997	3,004	3,011	3,055	3,044
	Weighted average common      shares assuming dilution		3,094	3,004	3,011	3,156	3,145
	Pre-opening costs		$      209	$      311	$      127	$      143	$      790
	Number of Company units at      end of period		69	71	71	69	69
	Company restaurant operating      weeks		884	907	923	1,004	3,718
	Sales per Company restaurant      operating week		$        28	$        27	$        26	$        29	$        28
1999:
	Revenues		$ 23,074	$ 22,887	$ 23,216	$ 25,401	$ 94,578
	Net income (Loss)		247	(336)	(518)	569	(38)
	Net income (Loss) per common share		0.07	(0.11)	(0.18)	0.19	(0.01)
	Net income per common share      assuming dilution		0.07	(0.11)	(0.18)	0.19	(0.01)
	Weighted average common shares		3,519	2,938	2,997	2,996	3,151
	Weighted average common      shares assuming dilution		3,725	2,938	2,997	3,008	3,151
	Pre-opening costs		$        99	$      183	$      342	$        67	$      691
	Number of Company units at      end of period		64	66	68	69	69
	Company restaurant operating      weeks		828	854	872	893	3,447
	Sales per Company restaurant      operating week		$        28	$        26	$        26	$        28	$        27
1998:
	Revenues		$ 23,500	$ 21,347	$ 21,266	$ 23,072	$ 89,185
	Net income		534	246	3	400	1,183
	Net income per common share		0.14	0.06	0.00	0.10	0.30
	Net income per common share      assuming dilution		0.13	0.06	0.00	0.10	0.28
	Weighted average common shares		3,898	3,942	3,971	3,955	3,942
	Weighted average common      shares assuming dilution		4,117	4,233	4,186	4,172	4,177
	Pre-opening costs		$      131	$      139	$      187	$        78	$      535
	Number of Company units at      end of period		62	62	64	64	64
	Company restaurant operating      weeks		796	815	908	806	3,325
	Sales per Company restaurant      operating week		$       29	$        26	$        23	$        28	$       26

FISCAL YEARS 2000, 1999, AND 1998

Results of Operations

The Company's results of operations for the year ended December 31, 2000 improved substantially over prior year. The Company had record sales, mainly due to a 3% increase in same store sales over prior year and the opening of additional units. Record sales are also due to the Company continuing its aggressive advertising campaign in all markets in 2000. During 2000, the Company expanded its focus on training, continuing to improve the quality of food preparation and customer service in all locations. This focus resulted in greater repeat business in 2000 and management anticipates this trend to continue in 2001. Additionally, the Company is maintaining the focus it began in 1999 to grow its franchise business. As a result, the Company experienced growth through its campaign to recruit additional franchisees, opening one new franchise location in 2000 and signing agreements for additional 25 units. The Company also experienced slightly better food and labor costs, despite increasing wages throughout its territories. This is primarily due to increased same store sales and higher check averages. The Company successfully opened one freestanding Garfield's location in 2000, which experienced higher sales as opposed to its normal mall based volumes. During the third and fourth quarters of 2000, the Company began to experience substantial increases in utility expenses. In some markets the increase was as much as 40% and management believes that continued increases in utility expenses in 2001 could negatively impact the Company's results of operations.

Revenues

Revenues for the year ended December 31, 2000, increased 10.6% over the revenues reported for the year ended December 26, 1999. Revenues for the year ended December 26, 1999, increased 6% over the revenues reported for the year ended December 27, 1998.

The number of restaurants operating at the end of each year, the number of operating months during that year and average sales per operating week were as follows:

	2000	1999	1998
Garfield's:
Number of Company restaurants at year end	50	49	48
Number of Company restaurant operating weeks	2,629	2,475	2,589
Average sales per Company restaurant operating      Week	26,649	25,528	23,018
Garcia's: (1)
Number of Company restaurants at year end	17	14	12
Number of Company restaurant operating weeks	825	763	766
Average sales per Company restaurant operating      Week	29,910	30,637	31,716
ROMA Foods:(2)
Number of Company restaurants at year end	2	5	2
Number of Company restaurant operating weeks	265	209	104
Average sales per Company restaurant operating      Week	30,893	32,107	36,712
All Concepts (3):
Number of Company restaurants at year end	69	68	62
Number of Company restaurant operating weeks	3,719	3,447	3,525
Average sales per Company restaurant operating      Week	27,675	27,058	26,378
(1) Includes Casa Lupita (for 1998 only) and Carlos Murphy's; excludes the Garcia's concession operation at the BankOne Ball Park in Phoenix, Arizona.
(2) Includes Pepperoni Grill, Bellini's and Tommy's; the two Bellini's and Tommy's were acquired in May 1999 and sold December 2000.
(3) Includes Garfield's, Pepperoni Grill, Bellini's, Tommy's, Garcia's, Carlos Murphy's and Casa Lupita; excludes the Garcia's concession operation at the BankOne Ball Park in Phoenix, Arizona.

A summary of sales and costs of sales expressed as a percentage of sales are listed below for the fiscal years:

	2000	1999	1998
Sales:
Food	86.5%	86.0%	85.3%
Beverage	13.5%	14.0%	14.7%
Total	100.0%	100.0%	100.0%
	=====	=====	=====
Costs of Sales:
Food	27.6%	28.1%	28.0%
Beverage	25.8%	23.8%	24.8%
Total	27.4%	27.5%	27.5%
	=====	=====	=====

Average weekly sales per unit for Garfield's were $26,650 during 2000 compared to $25,530 during 1999. The 2000 per unit weekly sales increased by $1,120 or 4.4% from 1999 levels. Average weekly sales per unit for Garcia's were $29,910 during 2000 versus $30,640 in 1999. Garcia's 2000 and 1999 average weekly sales per unit continued to be negatively impacted by negative publicity related to a vendor contaminated product problem in the Phoenix, Arizona market during 1998. As a result of a continued aggressive television advertising campaign in 1999 and 2000, average unit volumes in the Phoenix area Garcia's are stabilizing, however the units are not reaching historical profit levels due to food discounting.

Average weekly sales per unit for Garfield's were $25,530 during 1999 compared to $23,010 during 1998. The 1999 per unit weekly sales increased by $2,520 or 11% from 1998 levels. The increase was primarily due to the introduction of a new menu design, a successful television advertising campaign, the success of continued radio and newspaper advertising and the implementation of a mall employee rewards program in selected locations. Average weekly sales per unit for Garcia's were $30,640 during 1999 versus $31,720 in 1998. The Company's Garcia's units were negatively impacted by negative publicity related to a vendor contaminated product problem in the Phoenix, Arizona market during the third quarter of 1998. Aggressive advertising was unable to bring the average unit to volumes to historical levels. In addition, aggressive discounting to assist in attempting to bring back sales resulted in lower unit profitability.

Continuing royalties were $274,000 in 2000, $282,000 in 1999 and $323,000 in 1998. The decrease in 1999 from 1998 is a result of the Company's acquisition of three franchised Garfield's restaurants.

Other income during 2000 was $690,000 compared to $413,000 in 1999 and $638,000 in 1998. The increase in 2000 as compared to 1999 is primarily due to banquet and audio/video rental income in the Tempe, Arizona Garcia's in an Embassy Suites Hotel. Other income in 1999 decreased from 1998 due the Company receiving a fee in the amount of $120,000 to terminate an agreement under which the Company managed a Carlos Murphy's restaurant owned by an independent third party.

During 2000, 1999 and 1998 Other Income consisted of the following:

	2000	1999	1998
Vending	$125,000	$169,000	$195,000
Audio/Video Rental	112,000	---	---
Banquet Rental	55,000	---	---
Other Rental	60,000	63,000	5,000
Management Fees	---	---	57,000
Marketing Fund Revenues	39,000	33,000	42,000
Interest	38,000	28,000	31,000
Merchandise Sales	31,000	20,000	23,000
Fee for termination	---	---	120,000
Miscellaneous	230,000	100,000	165,000
Total	$690,000	$413,000	$638,000
	======	======	======

Costs and Expenses

The following is a comparison of costs of sales and labor costs (excluding payroll taxes and fringe benefits) as a percentage of food and beverage sales at Company-owned restaurants:

	2000	1999	1998
Garfield's:
Costs of sales	27.5%	27.9%	28.0%
Labor costs	28.3%	28.8%	27.9%
Total	55.8%	56.7%	55.9%
	=====	=====	=====
Garcia's (1):
Costs of sales	26.3%	25.6%	26.2%
Labor costs	31.5%	29.7%	30.5%
Total	57.8%	55.3%	56.7%
	=====	=====	=====
Pepperoni Grill (2)
Costs of sales	29.7%	30.6%	29.5%
Labor costs	30.4%	30.5%	28.5%
Total	60.1%	61.1%	58.0%
	=====	=====	=====
All Concepts (3):
Costs of sales	27.4%	27.5%	27.5%
Labor costs	29.3%	29.1%	28.7%
Total	56.7%	56.6%	56.2%
	=====	=====	=====
(1) Includes Casa Lupita (for 1998 only) and Carlos Murhph's.
(2) Includes Bellini's and Tommy's, which were purchased in May 1999 and sold in December 2000.
(3) Includes Garfield's, Garcia's, Pepperoni Grill, Bellini's, Tommy's, Carlos Murphy's and Casa Lupita (for 1998 only).

Garfield's costs of sales as a percentage of food and beverage sales decreased in 2000 to 27.5% from 27.9% in 1999. Garcia's costs of sales as a percentage of food and beverage sales increased to 26.3% in 2000 from 25.6% in 1999 and 26.2% in 1998. This increase is primarily due to high liquor costs and lower vendor rebates. Pepperoni Grill cost of sales as a percentage of sales December in 2000 to 29.7% from 30.6% in 1999. This decrease was due to efficiencies in purchasing due to the acquisition of Bellini's and Tommy's in May of 1999. Garfield's costs of sales as a percentage of food and beverage sales decreased to 27.9% in 1999 compared to 28.0% in 1998, primarily due to continued menu development, increased vendor rebates, and improved store-level food and beverage cost controls.

Garfield's labor costs as a percentage of food and beverage sales decreased in 2000 to 28.3% from 28.8% in 1999, which increased from 27.9% in 1998. This decrease from 1999 is primarily due to lower turnover in most markets. The increase from 1998 was primarily due to increased kitchen labor and restaurant level management salaries and incentive compensation. Labor costs for Garcia's as a percentage of food and beverage sales increased to 31.5% in 2000 from 29.7% in 1999. Labor costs for Pepperoni Grill increased in 1999 to 30.5% of food and beverage sales compared to 28.5% in 1998.

Operating expenses (which include labor costs) as a percentage of food and beverage sales were 61.3% in 2000, 61.6% in 1999, and 61.0% in 1998. The decrease in operating expenses as a percentage of food and beverage sales in 2000 compared to 1999 due primarily to increased sales. Were it not for the substantial increase in revenues from 1998-2000, and the corresponding necessity to significantly increase advertising and discounting to offset the impact of a vendor related contamination, operating expenses would have declined as a percentage of revenue.

Pre-Opening Costs

The Company expenses pre-opening costs as incurred. During each of the three years in the period ended December 31, 2000, the Company incurred and recognized as expense the following amounts for restaurant pre-opening costs relative to the corresponding number of restaurants opened:

	2000	1999	1998
Total pre-opening costs	$790,000	$691,000	$535,000
Restaurants opened	6	5	4
Average pre-opening costs per restaurant opened	$131,667	$138,200	$133,800
Total pre-opening costs as a percentage of food       and beverage sales	0.8%	0.7%	0.6%

The decrease in average pre-opening cost between 2000 and 1999 is primarily due to increased emphasis on training for new store openings. The increase in average pre-opening costs between 1999 and 1998 reflect delays experienced relative to two new restaurants opened in 1998 and 1999. Management expects future pre-opening costs to be lower.

General and Administrative Expenses

General and administrative expenses decreased as a percentage of total revenues to 5.6% in 2000 from 6.3% in 1999 as compared to 6.2% in 1998. The lower absolute levels of general and administrative expenses from 1998 to 2000 are related primarily to the Company's ability to increase revenues without incurring large corresponding addition to personnel costs. The Company anticipates that its costs of supervision and administration of Company and franchise stores will increase at a slower rate than revenue increases during the next few years.

Provision for Impairment of Long-Lived Assets

In the regular course of business the Company's restaurants are reviewed on an individual restaurant basis for indicators of impairment, whenever events or circumstances indicate that the carrying value of its restaurants may not be recoverable. The Company's primary test for an indicator of potential impairment is operating losses. In order to determine whether impairment has occurred, the Company estimates the future net cash flows expected to be generated from the use of its restaurants, and compares such estimated future cash flows to the respective carrying amounts. Those restaurants, which have carrying amounts in excess of estimated future cash flows, are deemed impaired. The carrying value of these restaurants is adjusted to an estimated fair value by discounting the estimated future cash flows attributable to such restaurants using a discount rate equivalent to the rate of return the Company expects to achieve from its investment in newly-constructed restaurants. The excess is charged to expense and cannot be reinstated.

Considerable management judgment and certain significant assumptions are necessary to estimate future cash flows. Significant judgments and assumptions used by the Company in evaluating its assets for impairment include, but may not be limited to: estimations of future sales levels, costs of sales, direct and indirect costs of operating the assets, the length of time the assets will be utilized and the Company's ability to utilize equipment, fixtures and other moveable long-lived assets in other existing or future locations. In addition, such estimates and assumptions include anticipated operating results related to certain profit improvement programs implemented by the Company during 1998, 1999 and 2000, as well as the possible rent reductions, deferrals, and other negotiated concessions from landlords. Actual results could vary materially from management's estimates and assumptions and such variance could result in a change in the estimated recoverability of the Company's long-lived assets. Accordingly, the results of the changes in those estimates could have a material impact on the Company's future results of operations and financial position.

During 2000, the Company recorded a $340,000 provision for impairment of long-lived assets related to three locations. During 1999, the Company recorded a $300,000 provision for impairment of long-lived assets related to four locations, and during 1998 the Company recorded a $41,000 provision for impairment of long-lived assets related to one location.

In the normal course of business, management performs a regular review of the strength of its operating assets. It is management's plan to continue to make such decisions to close under-performing restaurants and/or dispose of other assets it considers in the best long-term interest of the Company's shareholders.

Depreciation and Amortization Expense

Depreciation and amortization expense increased in 2000 to $3,889,000 (3.8% of food and beverage sales) compared to $3,378,000 (3.6% of food and beverage sales) in 1999 and $2,964,000 (3.4% of food and beverage sales) in 1998. The increase in 2000 compared to 1999 is primarily attributable to the increase in net assets subject to depreciation and amortization in 2000 versus 1999 as the result of the opening of additional restaurants in 2000 and 1999. The increase in 1999 versus 1998 also relates principally to the increase in net assets subject to depreciation and amortization because of the opening additional restaurants and the remodeling of existing restaurants.

Interest Expense

Interest expense during each of the three years in the period ended December 31, 2000, was $974,000 in 2000, $776,000 in 1999, and $410,000 in 1998. Additionally, the Company has capitalized approximately $71,000, $47,000, and $35,000 of interest costs during 2000, 1999 and 1998, respectively. The increase in interest expense in 1999 compared to 1998 is due principally to the Company's purchase of 1,056,200 shares for a total of $5,413,025 in February 1999. The increase in interest expense in 2000 compared to 1999 is attributable to an increase in the 2000 average borrowing balances under the Company's revolving credit agreements caused by the Company's aggressive program of building new Company owned units

Income Taxes

The provision for income tax was $103,000, $419,000, respectively, for 2000 and 1998. The benefit for income taxes was $116,000 in 1999.

At December 31, 2000, the Company has recorded a benefit for its deferred tax assets of approximately $3,473,000. Management believes that $2,311,000 of the assets will be recognized through the reversal of existing taxable temporary differences with the remainder to be recognized through realization of future income. It is management's opinion, based on the historical trend of normal and recurring operating results, present store development and forecasted operating results, that it is more likely than not that the Company will realize the approximately $3,060,000 in the future taxable income necessary to recognize the net deferred tax assets not otherwise offset by reversing taxable temporary differences; net operating loss carry forwards do not begin to expire until 2003 and general business tax credits until 2009. Although management of the Company is not presently aware of any adverse matters, result of loss of market share, increased competition or other adverse general economic conditions, it intends to evaluate the relizability of the net deferred tax asset at least quarterly by assessing the need for a valuation allowance.

Net Income Per Share Amounts

Basic Earnings Per Share ("EPS") includes no dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. The weighted-average common shares outstanding for the basic EPS calculation were 3,044,195 and 3,941,728 in 2000 and 1998, respectively. EPS for 1999 was anti-dilutive. Diluted EPS is computed by dividing net income available to common stockholders by the sum of the weighted-average number of common shares outstanding for the period plus dilutive common stock equivalents. The sum of the weighted-average common shares and common share equivalents for the diluted EPS calculation were 3,144,515, 3,162,267 and 4,177,073 in 2000, 1999 and 1998, respectively.

Impact of Inflation

The impact of inflation on the cost of food and beverage products, labor and real estate can affect the Company's operations. Over the past few years, inflation has had a lesser impact on the Company's operations due to the lower rates of inflation in the nation's economy and the economic conditions in the Company's market area.

Management believes the Company has historically been able to pass on increased costs through certain selected menu price increases and increased productivity and purchasing efficiencies, but there can be no assurance that the Company will be able to do so in the future. Management anticipates that the average cost of restaurant real estate leases and construction costs could increase in the future which could affect the Company's ability to expand.

Liquidity and Capital Resources

At December 31, 2000, the Company's working capital ratio decreased to .30 to 1 compared to .40 to 1 at December 26, 1999. As is customary in the restaurant industry, the Company has consistently operated with negative working capital and has not historically required large amounts of working capital. Historically, the Company has leased the vast majority of its restaurant locations. For fiscal years 2000, 1999 and 1998, the Company's expenditures for capital improvements were $8,876,000, $7,918,000 and $5,013,000, respectively, which were funded out of cash flows from operating activities of approximately $5,354,000, $7,497,000, and $2,945,000, respectively, landlord finish-out allowances of approximately $2,023,000, $814,000 and $706,000, respectively, and borrowings under the Company's credit agreements.

During 2001, the Company expects to construct and open up one new Garfield's and two Garcia's. The Company believes the cash generated from its operations and borrowing availability under its credit facility (described below), will be sufficient to satisfy the Company's net capital expenditures and working capital requirements through 2001.

In November 1997, the Company entered into an interest rate swap agreement with a bank to hedge its risk exposure to potential increases in LIBOR. This agreement has a term of five years and an initial notional amount of $9,500,000. The notional amount declines quarterly over the life of the agreement on a seven-year amortization schedule assuming a fixed interest rate of 7.68%. Under the terms of the interest rate swap agreement, the Company pays interest quarterly on the notional amount at a fixed rate of 7.68%, and receives interest quarterly on the notional amount at a floating rate of three-month LIBOR plus 1.25%.

In April 1997, the Company's Board of Directors authorized the repurchase of up to 200,000 shares of the Company's common stock. In July 1997, an additional 200,000 shares were authorized for repurchase. As of December 31, 2000, 169,134 shares had been repurchased under this plan for a total purchase price of approximately $770,000. The Company repurchased 67,500 additional shares subsequent to December 31, 2000.

In February 1999, the Company's Board of Directors authorized the repurchase of 1,056,200 shares of its common stock from Astoria Capital Partners, L.P., Montavilla Partners, L.P., and MicroCap Partners L.P. ("Sellers") for a purchase price of $5.125 per share or an aggregate purchase price of $5,413,025. The shares purchased from the Sellers represented 26.7% of the outstanding common stock of the Company, prior to the transaction. In connection with this transaction, the Company entered into a new credit facility with a bank in the aggregate amount of $14,600,000, of which a maximum of $6,000,000 is available to the Company under a revolving line of credit and $8,600,000 was available to the Company under a term loan. Certain proceeds of the term loan (approximately $5.4 million) were used for the stock purchase from the Sellers. The balance of the proceeds under the term loan (approximately $3.2 million) and the proceeds under the revolving line of credit were used to retire indebtedness under the Company's existing loan agreement. The revolving line of credit has a two-year term and initially bears interest at a floating rate of three month LIBOR plus 1.50% (initially 6.5%), which is reset quarterly. The term loan also provides for an initial floating rate of interest equal to three month LIBOR plus 1.50% and requires quarterly installments of principal and interest in the amount necessary to fully amortize the outstanding principal balance over a seven-year period, with a final maturity on the fifth anniversary of the note. The term loan converts to a five-year amortization schedule if the Company's debt coverage ratio, as defined in the loan agreement, exceeds a certain level. Also, the floating interest rate on both facilities is subject to changes in the Company's ratio of total loans and capital leases to net worth. Under the terms of these notes, the Company's minimum floating rate is LIBOR plus 1.25% and the maximum floating rate is LIBOR plus 1.75%. Borrowings under this loan agreement are unsecured. The loan agreement does contain certain financial covenants and restrictions. As of the date of this report, the Company is in compliance with operating covenants and restrictions.

Stock Put Agreements

In April 1997, the Company entered into stock put agreements with two of its executive officers (who also serve on the Company's Board of Directors). Under the agreements, in the event of the officer's death while an employee of the Company, their respective estate or legal representative has the right (but not the obligation) to compel the Company to purchase all or part of the common stock owned by or under stock option agreements with the decreased officers or members of their immediate families (i.e. spouse or children) or controlled by any of them through trusts, partnership corporations or other entities on the date of their death. The agreement calls for a calculation of the per share price payable by the company. The purchase price cannot exceed the the proceeds payable to the Company from the key man life insurance policy maintained on the life of the respective officer. The Company expects the source of funding for this commitment to come from the proceeds of the key man life insurance policy for the respective officer.

Quantitative and Qualitative Disclosures About Market Risk

As of the date of this report, the Company has an available revolving line of credit in the amount of $6,000,000, as well as outstanding borrowings under a term loan of approximately $5,979,000. Both loans bear interest at floating rate of three-month LIBOR plus 1.75% (8.56% as of the date of this report). Thus, the Company is exposed to the risk of earnings losses due to increases in three-month LIBOR. To hedge its risk exposure to potential increases in three-month LIBOR, the Company has entered into an interest rate swap agreement with a bank. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" for a discussion of the terms of the Company's credit facilities and interest rate swap agreement.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements of the Company are included in a separate section of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

In accordance with General Instruction G(3), a presentation of information required in response to Items 10, 11, 12, and 13 appear in the Company's Proxy Statement to be filed pursuant to Regulation 14A within 120 days of the year end covered hereby, and shall be incorporated herein by reference when filed.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,

AND REPORTS ON FORM 8-K

1. The following documents are filed as part of the report:

1.	Consolidated Financial Statements:
	Management's Responsibility for Financial Reporting
	Report of Independent Auditors
	Consolidated Balance Sheets as of December 31, 2000 and December 26, 1999
	Consolidated Statements of Income for each of the three years in the period ended December 31, 2000
	Consolidated Statements of Stockholders' Equity for each of the three years in the period ended December 31, 2000
	Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2000
	Notes to Consolidated Financial Statements
2.	Consolidated Financial Statement Schedules:
	All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
3.	Exhibits.
	The following exhibits are filed as part of Form 10-K and are identified by the numbers indicated:
Exhibit Number		Description of Document
3.1		Amended and Restated Articles of Incorporation. (1)
3.2		Amendment to the Amended and Restated Articles of Incorporation. (2)
3.3		Second Amendment to the Amended and Restated Articles of Incorporation. (11)
3.4		Bylaws as amended. (1)
3.5		Amendment to Bylaws. (11)
4.1		Specimen Stock Certificate. (3)
10.1		Employment Agreement between the Company and Vincent F. Orza, Jr., dated January 22, 2001.
10.2		Employment Agreement between the Company and James M. Burke, dated January 22, 2001.
10.3		Employment Agreement between the Company and Bradley L. Grow, dated January 1, 2001.
10.4		Lease Amendment dated May 1, 1999 between the Company and Great Places, L.L.C. for the lease of the Company's corporate office facilities in Edmond, Oklahoma.
10.5		Franchise Agreement and Amendment dated August 31, 1993 between the Company and Wolsey Dublin Company for the Garfield's franchise in Sioux City, Iowa and non-exclusive development rights to two additional locations in seven cities in four states over the next two years. (3)
10.6		Form of Franchise Agreement for Garfield's and Garcia's dated March 20, 2000.
10.7		Collateral Assignment Agreement dated January 20, 1991, between the Company and Vincent F. Orza, Jr. (5)
10.8		Collateral Assignment Agreement dated January 20, 1991, between the Company and James M. Burke. (5)
10.9		Employee Stock Purchase Plan dated June 15, 1994 (6).
10.10		Amended and restated Eateries, Inc. Omnibus Equity Compensation Plan dated as of June 15, 1994. (7)
10.11		Amendment to Amended and Restated Eateries, Inc. omnibus equity compensation plan. (11)
10.12		Asset Purchase Agreement dated November 14, 1997, by and between the Company, through its wholly-owned subsidiary, Fiesta Restaurants, Inc., and Famous Restaurants, Inc. and its subsidiaries. (8)
Exhibit Number		Description of Document
10.13		Agreement for Purchase and Sale of Assets and Licenses dated February 26, 1998, among the Company and Chevy's, Inc. (9)
10.14		Agreement for purchase and Sale of Assets dated February 26, 1998, between the Company and Chevy's, Inc. (9)
10.15		Stock Put Agreement dated April 2, 1997, by and among Vincent F. Orza, Jr. and the Company. (4)
10.16		Stock Put Agreement dated April 2, 1997, by and among James M. Burke and the Company. (4)
10.17		Stock Purchase Agreement dated as of February 17, 1999, between Eateries, Inc. and Astoria Capital Partners, L.P., Montavilla Partners, L.P. and Microcap Partners L.P. (10)
10.18		Loan Agreement dated effective February 19, 1999, among Eateries, Inc., Fiesta Restaurants, Inc. , Pepperoni Grill, Inc., Garfield's Management, Inc. and Local Federal Bank, F.S.B. (10)
10.19		Revolving Promissory Note in the principal amount of $6,000,000 dated February 19, 1999, by Eateries, Inc., Fiesta Restaurants, Inc. , Pepperoni Grill, Inc. and Garfield's Management, Inc. in favor of Local Federal Bank, F.S.B. (10)
10.20		Term Promissory Note in the principal amount of $8,600,000 dated February 19, 1999, by Eateries, Inc., Fiesta Restaurants, Inc., Pepperoni Grill, Inc., and Garfield's Management, Inc. in favor of Local Federal Bank, F.S.B. (10)
10.21		Lease Amendment dated August 1, 1999 between the Company and Great Places of Shawnee L.L.C. for the lease of the Company's Garfield's Restaurant in Shawnee, Oklahoma.
21.1		Subsidiaries of Eateries, Inc.
23.1		Consent of Arthur Andersen LLP.
INDEX TO EXHIBITS
(1)		Filed as exhibit to Registrant's Registration Statement on Form S-18 (File Nol 33-6818-FW) and incorporated herein by reference.
(2)		Filed as exhibit to Registrant's Quarterly Report on Form 10-Q for the six months ended June 30, 1988 (File No. 0-14968) and incorporated herein by reference.
(3)		Filed as exhibit to Registrant's Registration Statement on Form S-2 (File No. 33-69896) and incorporated herein by reference.
(4)		Filed as exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 1997 (File No. 0-14968) and incorporated herein by reference.
(5)		Filed as exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (File No. 0-14968) and incorporated herein by reference.
(6)		Filed as Appendix A to the Company's Notice of Annual Meeting of Shareholders dated April 29, 1994 and incorporated herein by reference.
(7)		Filed as exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (File No. 0-14968) and incorporated herein by reference.
(8)		Filed as exhibit to Registrant's Current Report on Form 8-K dated December 8, 1997 (File No. 0-14968) and incorporated herein by reference.
(9)		Filed as exhibit to Registrant's Current Report on Form 8-K dated March 16, 1998 (File No. 0-14968) and incorporated herein by reference.
(10)		Filed as exhibit to Registrant's Current Report on Form 8-K dated March 3, 1999 (File No. 0-14968) and incorporated herein by reference.
(11)		Filed as exhibit to registrant's proxy statement filed with the Commission on June 6, 2000 and incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

REGISTRANT:

EATERIES, INC.

Date: March 6, 2001 
By: /s/Vincent F. Orza, Jr.
Vincent F. Orza, Jr.
President, Chief Executive Officer

Date: March 6, 2001 
By: /s/Bradley L. Grow
Bradley L. Grow
Vice President, Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Date: March 6, 2001 
By: /s/Vincent F. Orza, Jr.
Vincent F. Orza, Jr.
Chairman of the Board, President and Director

Date: March 6, 2001 
By: /s/James M. Burke
James M. Burke
Assistant Secretary and Director

Date: March 6, 2001 
By: /s/Edward D. Orza
Edward D. Orza,
Director

Date: March 6, 2001 
By: /s/Patricia L. Orza
Patricia L. Orza,
Secretary and Director

Date: March 6, 2001 
By: /s/Thomas F. Golden
Thomas F. Golden,
Director

Date: March 6, 2001 
By: /s/Philip Friedman
Philip Friedman,
Director

Date: March 6, 2001 
By: /s/Larry Kordisch
Larry Kordisch,
Director

EATERIES, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
	Page
Management's Responsibility for Financial Reporting	F-1
Report of Independent Auditors	F-2
Consolidated Balance Sheets as of December 31, 2000 and December 26, 1999	F-3
Consolidated Statements of Income for each of the three years in the period ended       December 31, 2000	F-4
Consolidated Statements of Stockholders' Equity for each of the three years in the period ended       December 31, 2000	F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended       December 31, 2000	F-6
Notes to Consolidated Financial Statements	F-7

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

The management of Eateries, Inc. has the responsibility for preparing the accompanying consolidated financial statements and for their integrity and objectivity. The statements were prepared in accordance with generally accepted accounting principles and include amounts that are based on management's best estimates and judgment where necessary. Management believes that all representations made to our external auditors during their examination of the financial statements were valid and appropriate.

To meet its responsibility, management has established and maintains a comprehensive system of internal control that provides reasonable assurance as to the integrity and reliability of the consolidated financial statements, that assets are safeguarded, and that transactions are properly executed and reported. This system can provide only reasonable, not absolute, assurance that errors and irregularities can be prevented or detected. The concept of reasonable assurance is based on the recognition that the cost of a system of internal control is subject to close scrutiny by management and is revised as considered necessary.

The Board of Directors of Eateries, Inc. have engaged Arthur Andersen LLP, independent auditors, to conduct an audit of and express an opinion as to the fairness of the presentation of the 2000 consolidated financial statements. Their report is included on the following page.

/s/Vincent F. Orza, Jr.
Vincent F. Orza, Jr.
President and Chairman
Chief Executive Officer

/s/Bradley L. Grow
Bradley L. Grow
Vice President
Chief Financial Officer

March 6, 2001

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Eateries, Inc.
Oklahoma City, Oklahoma

We have audited the accompanying consolidated balance sheets of Eateries, Inc. and subsidiaries (an Oklahoma Corporation) as of December 31, 2000 and December 26, 1999 and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Eateries, Inc. and subsidiaries at December 31, 2000 and December 26, 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

Oklahoma City, Oklahoma
March 1, 2001

EATERIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
	December 31, 2000	December 26, 1999
ASSETS
Current assets:
Cash and cash equivalents	$   875,892	$2,243,332
Receivables:
Franchisees	156,538	157,238
Insurance refunds	---	309,213
Landlord finish-out allowances	10,000	10,000
Other	1,089,985	1,047,867
Deferred income taxes (Note 9)	--	226,000
Inventories	1,010,631	937,098
Prepaid expenses and deposits	1,585,384	685,024
Total current assets	4,728,430	5,615,772
Property and equipment, at cost:
Land and buildings	838,800	838,800
Furniture and equipment	19,775,204	16,528,426
Leasehold improvements	38,092,084	32,799,603
Assets under capital leases	123,430	123,420
	58,829,518	50,290,249
Less: Landlord finish-out allowances	18,327,050	16,304,266
	40,502,468	33,985,983
Less: Accumulated depreciation and amortization	16,773,112	13,080,932
Net property and equipment	23,729,356	20,905,051
Deferred income taxes (Note 9)	1,585,885	1,143,171
Goodwill, net	2,238,276	2,707,062
Other assets	819,842	718,839
	$33,101,789	$31,089,895
	=======	=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$ 8,540,398	$ 7,035,152
Accrued liabilities:
Compensation	2,771,953	2,462,458
Taxes, other than income	1,081,659	1,063,360
Deferred income taxes (Note 9)	424,008	---
Other	1,600,741	2,146,648
Current portion of long-term obligations (Note 6)	1,348,571	1,228,571
Total current liabilities	15,767,330	13,936,189
Deferred credit	535,352	578,832
Other liabilities	260,325	157,531
Long-term obligations, net of current portion (Note 6)	8,439,744	9,092,131
Commitments and contingencies (Note 5 and 12)
Total Liabilities	25,002,751	23,764,683
Stockholders' equity (Note 10):
Preferred stock, $.002 par value, none outstanding
Common stock, $.002 par value, 4,468,265 and 4,408,065 shares             outstanding at December 31, 2000 and December 26, 1999,             respectively	8,937	8,816
Additional paid-in capital	10,264,218	10,114,079
Retained earnings	5,009,906	4,099,038
	15,283,061	14,221,933
Treasury stock, at cost 1,454,097 and 1,380,395 shares at             December 31, 2000 and December 26, 1999, respectively	(7,184,023)	(6,896,721)
Total stockholders' equity	8,099,038	7,325,212
	$33,101,789	$31,089,895
	=======	=======
See accompanying notes.

EATERIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
	December 31, 2000	December 26, 1999	December 27, 1998
Revenues:
Food and beverage sales	$103,479,815	$ 93,846,076	$ 88,189,726
Franchise fees and royalties	435,381	319,422	357,997
Other	689,791	412,676	637,517
Total revenues	104,604,987	94,578,174	89,185,240
Costs of sales	28,318,905	25,840,737	24,260,591
	76,286,082	68,737,437	64,924,649
Operating expenses (Note 7)	63,472,674	57,778,851	53,824,344
Pre-opening costs (Note 2)	790,000	691,000	535,000
General and administrative expenses	5,805,974	5,968,157	5,547,711
Provision for impairment of long-lived assets (Note 8)	340,000	300,000	41,000
Depreciation and amortization	3,889,419	3,377,569	2,964,184
Interest expense	974,190	776,171	410,223
	75,272,257	68,891,748	63,322,462
Income (loss) before income taxes	1,013,825	(154,311)	1,602,187
Provision for (benefit from) income taxes (Note 9)	102,957	(116,171)	419,000
Net income (loss)	$      910,868	$      (38,140)	$   1,183,187
	=======	=======	=======
Net income (loss) per common share (Note 11)	$            0.30	$           (0.01)	$           0.30
Net income per common share assuming dilution (Note 11)	$            0.29	$          (0.01)	$           0.28
	=======	=======	=======
See accompanying notes.

EATERIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
	Common Stock						Additional
	Shares				Treasury Stock		Paid-in	Retained
	Authorized	Issued		Amount	Shares	Amount	Capital	Earnings	Total
Balance, December 28, 1997	20,000,000	4,221,785		$8,444	347,115	$(1,567,283)	$9,486,594	$3,065,300	$10,993,055
Issuance of common stock:
Exercise of stock options	-	107,499		215	-	-	258,222	-	258,437
Employee stock purchase plan	-	17,736		35	-	-	74,400	-	74,435
Tax benefit from the exercise of non-qualified stock options	-	-		-		-	133,000	-	133,000
Treasury stock acquired  (Note 10)	-	-		-	36,900	(191,130)	-	-	(191,130)
Net income	-	-		-	-	-	-	1,183,187	1,183,187
Balance, December 27, 1998	20,000,000		4,347,020	$8,694	384,015	$(1,758,413)	$9,952,216	$4,248,487	$12,450,984
Issuance of common stock:
Exercise of stock options	-		30,255	60	-	-	58,319	-	58,379
Employee stock purchase     plan	-		30,790	62	-	-	73,544		73,606
Tax benefit from the exercise of non-qualified stock options	-		-	-	-	-	30,000	-	30,000
Treasury stock acquired (Note 10)	-		-	-	1,095,662	(5,634,318)	-	-	(5,634,318)
Treasury stock issued for acqusition	-		-	-	(99,278)	496,010	-	(111,309)	384,701
Net loss	-		-	-	-	-	-	(38,140)	(38,140)
Balance, December 26, 1999	20,000,000		4,408,065	$8,816	1,380,399	$(6,896,721)	$10,114,079	$4,099,038	$7,325,212
Issuance of common stock:
Exercise of stock options	-		37,030	74	-	-	91,325	-	91,399
Employee stock purchase     plan	-		23,170	47	-	-	54,114	-	54,161
Tax benefit from the exercise of non-qualified stock options	-		-	-	-	-	4,700	-	4,700
Treasury stock acquired (Note 10)	-		-	-	10,070	(56,650)	-	-	(56,650)
Treasury stock acquired from sale of assets	-		-	-	63,628	(230,652)	-	-	(230,652)
Net income	-		-	-	-	-	-	910,868	910,868
Balance, December 31, 2000	20,000,000		4,468,265	$    8,937	1,454,097	$(7,184,023)	$10,264,218	$ 5,009,906	$8,099,038
	=======		=======	=======	=======	=======	=======	=======	=======
See accompanying notes.

EATERIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
		Year Ended
		December 31, 2000	December 26, 1999		December 27, 1998
Cash flows from operating activities:
Net income or (loss)	$ 910,868		$    (38,140)		$ 1,183,187
Adjustments to reconcile net income to             net cash provided by operating activities:
Depreciation and amortization	3,889,419		3,377,569		2,964,184
Provision (benefit) for deferred income taxes	102,957		(116,171)		366,000
(Increase) decrease in operating assets:
Receivables	271,392		(403,512)		(97,044)
Deferred income taxes	207,294		(508,000)		(38,000)
Inventories	(73,533)		(66,803)		(302,160)
Prepaid expenses and deposits	(905,479)		1,600,670		(226,431)
Other assets	(495,470)		---		---
Increase (decrease) in operating liabilities:
Accounts payable	1,505,246		2,568,630		(760,890)
Accrued liabilities	(218,113)		1,190,229		(228,715)
Deferred credits	---		---		77,328
Other liabilities	59,314		(107,182)		8,000
Total adjustments	4,343,027		7,535,430		1,762,272
Net cash provided by operating activities	5,253,895		7,497,290		2,945,459
Cash flows from investing activities:
Capital expenditures	(8,776,530)		(7,918,226)		(5,012,582)
Landlord finish-out allowances	2,022,784		813,702		706,250
Net cash payments for restaurant acquisitions	---		(320,479)		(378,922)
Proceeds from the sale of property and equipment	511,825		---	6,152,393
Payments received for notes receivable	3,597		3,574		75,290
Decrease (increase) in other assets	---		(94,664)		23,142
Net cash (used in) provided by investing activities	(6,238,324)		(7,516,093)		1,565,571
Cash flows from financing activities:
Sales of common stock	54,161		73,606		74,436
Payments on long-term obligations	(1,228,571)		(1,046,503)		(5,572,260)
Borrowings under revolving credit agreement	34,405,000		14,810,829		12,875,000
Payments under revolving credit agreement	(33,705,000)		(12,760,829)		(12,125,000)
Borrowings under note payable	---		5,463,333		---
Proceeds from issuance of stock on exercise of             stock options	91,399		58,379		249,892
Repurchase of treasury stock	---		(5,634,318)		(182,580)
Increase in bank overdrafts included in             accounts payable	---		---		135,759
Net cash (used in) provided by financing activities	(383,011)		964,497		(4,544,755)
Net (decrease) increase in cash and cash equivalents	(1,367,440)		945,694		(33,725)
Cash and cash equivalents at beginning period	2,243,332		1,297,638		1,331,363
Cash and cash equivalents at end of period	$    875,892		$  2,243,332		$  1,297,638
		=======	=======		=======
See accompanying notes.

EATERIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization

Eateries, Inc. (the "Company") was incorporated under the laws of the State of Oklahoma on June 1, 1984. The Company is engaged in the creation, design, management and operations of restaurants through Company-owned and franchise restaurants. The Company's restaurants are located primarily in the Southwest, Midwest and Southeast regions of the United States. The Company's restaurants operate under the name Garfield's Restaurant & Pub ("Garfield's"), Pepperoni Grill,Garcia's Mexican Restaurants ("Garcia's") and Carlos Murphy's. An analysis of Company-owned and franchised restaurants for the three years in the period ended December 31, 2000, is as follows:

	Company Units	Franchised Units	Total Units
At December 28, 1997	62	10	72
Units opened	3	1	4
Units closed	(1)	--	(1)
Units acquired	1	--	1
Purchase of franchise units	3	(3)	--
Units sold	(4)	--	(4)
At December 27, 1998	64	8	72
Units opened	5	1	6
Units closed	(3)	-	(3)
Units acquired	3	-	3
At December 26, 1999	69	9	78
Units opened	4	---	4
Units closed	(1)	(1)	(2)
Units sold	(3)		(3)
At December 31, 2000	69	8	77
	====	====	====

(2) Summary of Significant Accounting Policies

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Eateries, Inc. and its wholly-owned subsidiaries, Fiesta Restaurants, Inc., ROMA Foods, Inc., and Garfield's Management, Inc. All significant intercompany transactions and balances have been eliminated.

RECLASSIFICATIONS

Certain reclassifications have been made to prior year financial statements to conform to current year presentation. These reclassifications have no effect on previously reported net income or stockholders' equity.

FISCAL YEAR

The Company's fiscal year is a 52/53 week year ending on the last Sunday in December. For the year ended December 31, 2000 the Company operated a 53 week year.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include certain highly liquid debt instruments with a maturity of three months or less when purchased.

OTHER RECEIVABLES

Other receivables included on the consolidated balance sheets consist primarily of food rebate receivables which is a component of cost of sales and banquet receivables which are recorded at the time the service is provided.

INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out) or market and consist primarily of food and beverages.

LANDLORD FINISH-OUT ALLOWANCES

Amounts received or receivable from landlords for reimbursement of improvements to leased facilities are recorded as a reduction of the costs incurred by the Company for property and equipment.

DEPRECIATION AND AMORTIZATION

Property and equipment (which includes assets under capital leases) and landlord finish-out allowances are stated at cost (or amounts received with respect to landlord finish-out allowances) and are depreciated and amortized over the lesser of the estimated useful lives of the assets or the remaining term of the leases using the straight-line method. Estimated useful lives are as follows:

Buildings	15-30 Years
Furniture and equipment	3-15 Years
Leasehold improvements	3-15 Years
Landlord finish-out allowances	8-15 Years

GOODWILL

The Company records goodwill in connection with acquisitions. Goodwill is recorded in the amount of the purchase price in excess of the fair value of the assets acquired and amortized over twenty years. The amount of Goodwill presented on the Consolidated Balance Sheets is net of accumulated amortization of approximately $415,000, $341,000 and $165,000for 2000, 1999 and 1998.

REVENUE

Revenue from food and beverage sales is recorded at the date services are provided. Typically all customers pay at the time the service is provided, however, due to the company opening a new banquet facility, the company allows certain parties to pay in arrears. The revenue from banquets is also recorded when the service is provided and any uncollected amounts are recorded to other receivables included on the balance sheet.

ADVERTISING COSTS

Costs incurred in connection with advertising and marketing of the Company's restaurants are expensed as incurred. Such costs amounted to $3,199,000, in 2000 $2,868,800, in 1999, and $2,324,000 in 1998.

PRE-OPENING COSTS

The costs related to the opening of restaurant locations are expensed when incurred.

PROVISION FOR IMPAIRMENT OF LONG-LIVED ASSETS

The Company's restaurants are reviewed on an individual restaurant basis for indicators of impairment whenever events or circumstance indicate that the carrying value of its restaurants may not be recoverable. The Company's primary test for an indicator of potential impairment is operating losses. In order to determine whether an impairment has occurred, the Company estimates the future net cash flows expected to be generated from the use of its restaurants and the eventual disposition, as of the date of determination, and compares such estimated future cash flows to the respective carrying amounts. Those restaurants, which have carrying amounts in excess of estimated future cash flows, are deemed impaired. The carrying value of these restaurants is adjusted to an estimated fair value by discounting the estimated future cash flows attributable to such restaurants using a discount rate equivalent to the rate of return the Company expects to achieve from its investment in newly-constructed restaurants. The excess is charged to expense and cannot be reinstated. (See Note 8.)

INCOME TAXES

The Company is subject to Federal, state and local income taxes. Deferred income taxes are provided on the tax effect of presently existing temporary differences, existing net operating loss and tax credit carryforwards. The tax effect is measured using the enacted marginal tax rates and laws that will be in effect when the differences and carryforwards are expected to be reversed or utilized. Temporary differences consist principally of depreciation caused by using different lives for financial and tax reporting, the expensing of smallwares when incurred for tax purposes while such costs are capitalized for financial purposes and the expensing of costs related to restaurant closures and other disposals for financial purposes prior to being deducted for tax purposes.

DEFERRED CREDIT

Certain of the Company's long-term noncancellable operating leases for restaurant and corporate facilities include scheduled base rental increases over the term of the lease. The total amount of the base rental payments is charged to expense on the straight-line method over the term of the lease. The Company has recorded a deferred credit to reflect the net excess of rental expense over cash payments since inception of the leases.

FRANCHISE ACTIVITIES

The Company franchises the Garfield's and Garcia's concepts to restaurant operators. As of December 31, 2000 and December 26, 1999, eight and nine restaurant units, respectively, were operating under franchise agreements. In July 1998, the Company acquired three of its franchised Garfield's. As a result of this transaction, the system includes seven franchised Garfield's. The initial non-refundable franchise fee paid to the Company is recognized as income in the year received. The franchisor provides initial services to the franchisee in the selection of a site, approval of architectural plans, assistance in the selection of equipment for the restaurant, distribution of operations manuals and training of franchisee's personnel prior to the opening of the restaurant. The Company recognized $35,000 of initial franchise fees for franchised restaurants during 1999, and $35,000 in franchise fees in 1998. During 2000 the Company recognized $161,000 in initial franchise fees.

Continuing royalties are recognized as revenue based on the terms of each franchise agreement, generally as a percentage of sales of the franchised restaurants. During 2000, 1999 and 1998, the Company recognized $274,000, $282,000 and $323,000, respectively, of fees from continuing royalties.

Garfield's franchisees are required to remit an amount equal to 1/2% of their sales to the Garfield's Creative Marketing Fund. The franchisees' payments, which were $39,000, $44,000 and 40,000, during 2000, 1999 and 1998, respectively, are combined with the franchisor's expenditures to purchase services for creative advertising and design, market research and other items to maintain and further enhance the Garfield's concept.

Franchisee receivables at December 31, 2000 and December 26, 1999 are comprised primarily of uncollected continuing royalties, which are generally unsecured; however, the Company has not experienced significant credit losses in prior years and is not aware of any significant uncollectible amounts at December 31, 2000.

CAPITALIZATION OF INTEREST

Interest attributed to funds used to finance restaurant construction projects is capitalized as an additional cost of the related assets. Capitalization of interest ceases when the related projects are substantially complete. The Company has capitalized approximately $71,000, $47,000 and $35,000 of interest costs during 2000, 1999 and 1998, respectively. These costs are included in leasehold improvements in the accompanying balance sheets.

STOCK-BASED COMPENSATION

As permitted by SFAS 123, "Accounting for Stock-Based Compensation." the Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related interpretations in accounting for its employee stock options because the alternative fair value accounting provided for under SFAS 123, requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.

NET INCOME PER COMMON SHARE

Basic Earnings Per Share ("EPS") includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income available to common stockholders by the sum of the weighted average number of common shares outstanding for the period plus common stock equivalents.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

STATEMENTS OF CASH FLOWS

Interest of $978,000, $775,000 and $409,000 was paid for 2000, 1999 and 1998, respectively.

For 2000, 1999 and 1998, the Company had the following non-cash investing and financing activities.

	Fiscal Year
	2000	1999	1998
Decrease in current receivables       for landlord finish-out allowances	$         ---	$         ---	$  (96,250)
Increase Stockholder Equity as a result of the issuance of       treasury stock related to restaurant acquisition	---	384,702	---
Decrease in stockholder's equity as a result of the receipt of       treasury stock related to restaurant sale	(230,652)	---	---
Acquisition of treasury stock upon exercise of       stock options (Note 10)	56,650	---	8,550
Increase in additional paid-in capital as a result       of tax benefits from the exercise of non-qualified stock       options	4,700	30,000	133,000
Asset write-offs related to restaurant       closures and other disposals	222,988	90,822	---
Assumption of liabilities related to restaurant acquisition	---	263,883	---
Decrease in goodwill as a result of 1997 acquisition purchase accounting adjustments	---	---	216,758
Decrease in goodwill as a result of sale of restaurants	230,651	---	---

FAIR VALUES OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the Company in estimating the fair values of financial instruments:

Cash and cash equivalents, accounts receivable, deposits, accounts payable and accrued liabilities - The carrying amounts reported in the consolidated balance sheets approximate fair values because of the short maturity of these instruments.

Long-term obligations - The revolving credit agreement and term loan, which represent the material portion of long-term obligations in the accompanying consolidated balance sheets, bear interest at a variable rate, which is adjusted quarterly. Therefore, the carrying values for these borrowings approximate their fair values.

ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and for Hedging Activities", with an effective date for periods beginning after June 15, 1999. In July 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB No. 133". As a result of SFAS No. 137, adoption of SFAS No. 133 is now required for financial statements for periods beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities', which amends the accounting and reporting standards of SFAS No. 133 for certain derivative instruments and hedging activities. SFAS No. 133 sweeps in a broad population of transactions and changes the previous accounting definition of a derivative instrument. Under SFAS No. 133, every derivative instrument is recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedging accounting criteria are met. The Company has reviewed various contracts, identifying those which meet the criteria as set forth in SFAS No. 133 and SFAS No. 138. The Company adopted these new standards effective January 1, 2001. The adoption of these new standards did not have material impact on the Company's financial position or results of operation.

(3) Restaurant Acquisitions

In March 1998, the Company acquired one Garcia's Mexican Restaurant from Famous Restaurants, Inc. In connection with this transaction, Famous paid the Company $70,000 to assume the real estate lease associated with this location and approximately $60,000 to assume certain liabilities related to this location. The liabilities assumed by the Company cannot exceed the amount paid to the Company by Famous. The acquisition has been accounted for under the purchase method. Pro forma operating results for the year ended December 27, 1998 assuming that the acquisition had been completed on the first day of each respective fiscal year, would not be materially different than the results reported.

In July 1998, the Company acquired all of the outstanding common stock of O.E., Inc. for a cash purchase price of $107,000. O.E., Inc. owned and operated three Garfield's in Oklahoma. The acquisition has been accounted for under the purchase method. Pro forma operating results for the years ended December 27, 1998, assuming that the acquisition had been completed on the first day of each respective fiscal year, would not be materially different than the results reported.

In May 1999, the Company acquired all of the outstanding common stock of K & L Restaurants, Inc. for 36,101 shares of the Company's common stock and $125,000 in cash. K & L Restaurants, Inc. owns and operates Bellini's, a restaurant located on Waterford Boulevard in Oklahoma City, Oklahoma. The acquisition has been accounted for under the purchase method. Pro forma operating results for the years ended December 26, 1999 and December 27, 1998, assuming that the acquisition had been made on the first day of the respective years, would not be materially different than the results reported.

In May 1999, the company acquired all of the outstanding common stock of B & C Development Company for 36,101 shares of the Company's common stock and $125,000 in cash. B & C Development Company owns and operates Tommy's Italian-American Grill located at North Park Mall in Oklahoma City, Oklahoma. The acquisition has been accounted for under the purchase method. Pro forma operating results for the years ended December 26, 1999 and December 27, 1998, assuming that the acquisition had been made on the first day of the respective years, would not be materially different than the results reported.

In May 1999, the Company acquired certain assets of Bellini's Ristorante and Grill of Edmond, LLC for 27,076 shares of the Company's common stock. Bellini's Ristorante and Grill of Edmond, LLC owns and operates Bellini's, a restaurant located in Edmond, Oklahoma. The acquisition has been accounted for under the purchase method. Pro forma operating results for the years ended December 26, 1999 and December 27, 1998, assuming that the acquisition had been made on the first day of the respective years, would not be materially different than the results reported.

(4) Restaurant Dispositions

In February 1998, the Company sold substantially all of the assets, including real estate, comprising three of the Casa Lupita restaurants (acquired from Famous) to Chevy's, Inc. ("Chevy's") for a cash price of approximately $5,300,000. The proceeds from this sale were used to pay-down debt primarily related to the Famous Acquisition. In connection with this transaction, the Company entered into an agreement to sell substantially all of the assets related to one additional Casa Lupita to Chevy's for a price of approximately $1,000,000. This transaction closed in May 1998. The proceeds from this second transaction were used to pay-down debt.

In December 2000, the Company sold three restaurants back to their founder, Tommy Byrd, for $500,000 and 63,628 shares of the Company's Common Stock. No gain or loss was recognized in the sale. These were the two Bellini's Ristrorante & Grill's and one Tommy's Italian-American Restaurant located in the Oklahoma City, Oklahoma area. The Company retained the rights to the name and trademark "Bellini's Ristorante and Grill" outside of Oklahoma and Texas.

(5) Commitments

The Company leases the majority of its restaurant facilities and its corporate office under operating leases with initial terms expiring at various dates through the year 2015. Certain leases contain renewal options ranging from five to ten years. Most, but not all, leases require the Company to be responsible for the payment of taxes, insurance and/or maintenance and include percentage rent and fixed rent escalation clauses. In the normal course of business, the Company may grant a landlord lien on certain personal property upon an event of default by the Company. At December 31, 2000, the remaining minimum rental commitments under long-term noncancellable leases, excluding amounts related to taxes, insurance, maintenance and percentage rent, are as follows:

2001	$  5,966,000
2002	5,488,000
2003	5,039,000
2004	4,312,000
2005	3,625,000
Thereafter	11,518,000
Total minimum rental commitments	$35,948,000
	=======

The components of rent expense for noncancellable operating leases are summarized as follows:

		Fiscal Year
	2000		1999	1998
Minimum rents	$ 6,133,000		$ 5,790,000	$ 5,419,000
Percentage rents	542,000		361,000	345,000
	$ 6,675,000		$ 6,151,000	$ 5,764,000
	=======		=======	=======

(6) Long-term Obligations

Long-term obligations consist of the following:

	December 31, 2000	December 26, 1999
Revolving line of credit with a bank, variable interest at the three     month London Interbank Offered Rates ("LIBOR") plus 1.75%     (7.85% at December 31, 2000)	$3,500,000	$ 2,800,000
Term loan with a bank, variable interest at the three-month     LIBOR plus 1.75% (7.85% at December 31, 2000)	6,286,345	7,514,917
Bank Loan , Interest fixed at 10% at December 31, 2000	1,970	5,785
	9,788,315	10,320,702
Less current portion	(1,348,571)	(1,228,571)
	$8,439,744	$9,092,131
	=======	=======

Maturities of long-term obligations at December 31, 2000 are:

2001	1,348,571
2002	1,228,571
2003	1,228,571
2004	5,982,602
	$9,788,315
	=======

In February 1999, the Company entered into a new credit facility with a bank in the aggregate amount of $14,600,000, of which a maximum of $6,000,000 is available to the Company under a revolving line of credit and $8,600,000 was available to the Company under a term loan. Certain proceeds from the term loan (approximately $5.4 million) were used to repurchase $1,056,200 shares of the Company's common stock (see Note 10). The balance of the proceeds under the term loan (approximately $3.2 million) and the proceeds under the revolving line of credit were used to retire indebtedness under the Company's existing loan agreement. The revolving line of credit has a two-year term and initially bears interest at a floating rate of three month LIBOR plus 1.50%, which is reset quarterly. The term loan also provides for an initial floating rate of interest equal to three month LIBOR plus 1.50% and requires quarterly installments of principal and interest in the amount necessary to fully amortize the outstanding principal balance over a seven-year period, with a final maturity on the fifth anniversary of the note. The term loan converts to a five-year amortization schedule if the Company's debt coverage ratio, as defined in the loan agreement, exceeds a certain level. Also, the floating interest rate on both facilities is subject to changes in the Company's ratio of total loans and capital leases to net worth. Under the terms of these notes, the Company's minimum floating rate is LIBOR plus 1.25% and the maximum floating rate is LIBOR plus 1.75%. Borrowings under this loan agreement are unsecured. The loan agreement does contain certain financial covenants and restrictions. For the year ended December 31, 2000, the Company violated a certain financial commitment relating to a limit on capital expenditures. The bank waived the violation of this covenant. As of the date of this report, the Company is in compliance with these covenants and restrictions.

In November 1997, the Company entered into an interest rate swap agreement with a bank to hedge its risk exposure to potential increases in LIBOR. This agreement has a term of five years and an initial notional amount of $9,500,000. The notional amount declines quarterly over the life of the agreement on a seven-year amortization schedule assuming a fixed interest rate of 7.68%. Under the terms of the interest rate swap agreement, the Company pays interest quarterly on the notional amount at a fixed rate of 7.68% and receives interest quarterly on the notional amount at a floating rate of three-month LIBOR plus 1.25%. The notional amount as of December 31, 2000 was $5,711,000. The unrealized gain at 2000, 1999 and 1998 was immaterial.

(7) Related Party Transactions

An affiliate of the Company is providing marketing and advertising services. Total costs incurred for such services (primarily radio, television and print media) were approximately $1,056,000 in 2000, $1,333,093 in 1999, and $593,000 in 1998. A director of the Company is a partner in a law firm that provides legal services to the Company. During 2000, 1999 and 1998, the Company incurred approximately $208,000, $224,778 and $213,000, respectively, in legal services with the firm. The Company leases two buildings from affiliates. During 2000 and 1999 the lease payments related to these buildings were $214,000 and $80,400, respectively.

(8) Provision for Impairment of Long-Lived Assets

The Company's restaurants are reviewed on an individual restaurant basis for indicators of impairment whenever events or circumstance indicate that the carrying value of its restaurants may not be recoverable. The Company's primary test for an indicator of potential impairment is operating losses. In order to determine whether an impairment has occurred, the Company estimates the future net cash flows expected to be generated from the use of its restaurants and the eventual disposition, as of the date of determination, and compares such estimated future cash flows to the respective carrying amounts. Those restaurants, which have carrying amounts in excess of estimated future cash flows, are deemed impaired. The carrying value of these restaurants is adjusted to an estimated fair value by discounting the estimated future cash flows attributable to such restaurants using a discount rate equivalent to the rate of return the Company expects to achieve from its investment in newly-constructed restaurants. The excess is charged to expense and cannot be reinstated.

Considerable management judgment and certain significant assumptions are necessary to estimate future cash flows. Significant judgments and assumptions used by the Company in evaluating its assets for impairment include, but may not be limited to: estimations of future sales levels, cost of sales, direct and indirect costs of operating the assets, the length of time the assets will be utilized and the Company's ability to utilize equipment, fixtures and other moveable long-lived assets in other existing or future locations. In addition, such estimates and assumptions include anticipated operating results related to certain profit improvement programs implemented by the Company during 2000, 1999 and 1998 as well as the continuation of certain rent reductions, deferrals, and other negotiated concessions from certain landlords. Actual results could vary significantly from management's estimates and assumptions and such variance could result in a change in the estimated recoverability of the Company's long-lived assets. Accordingly, the results of the changes in those estimates could have a material impact on the Company's future results of operations and financial position.

During 2000, 1999 and 1998, the Company recorded a $340,000, $300,000 and $41,000, respectively as a provision for impairment of long-lived assets.

(9) Income Taxes

The provision (benefit) for income taxes consists approximately of the following (see Note 2):

	2000	1999	1998
Current:
Federal	$   (15,000)	$           ---	$            ---
State	91,000	---	53,000
	76,000	---	53,000
Deferred:
Federal	23,000	(110,000)	322,000
State	4,000	(6,000)	44,000
	27,000	(116,000)	366,000
Provision for income taxes	$  103,000	$  (116,000)	$   419,000
	=======	=======	=======

The components of deferred tax assets and liabilities consist approximately of the following:

	December 31, 2000	December 26, 1999
Deferred tax assets:
Net operating loss carryforwards	$   399,000	$   940,000
General business tax credits	1,860,000	1,790,000
Alternative minimum tax credit	772,000	380,000
Reserve for restaurant closing	166,000	121,000
Accrued vacation	62,000	98,000
Gift certificate liability	52,000	85,000
Deferred rent credit	55,000	64,000
Other	107,000	--
Total deferred tax assets	3,473,000	3,478,000
Deferred tax liabilities:
Smallwares expensed for tax purposes	872,000	711,000
Tax depreciation in excess of financial depreciation	1,297,000	1,252,000
Other	142,000	145,000
Total deferred tax liabilities	2,311,000	2,108,000
Net deferred tax assets	1,162,000	1,370,000
	=======	=======

At December 31, 2000, the Company has recorded a benefit for its deferred tax assets of $3,473,000. Management believes that $2,311,000 of these assets will be recognized through the reversal of existing taxable temporary differences with the remainder to be recognized through realization of future income. It is management's opinion based on the historical trend of normal and recurring operating results, present store development, and forecasted operating results that it is more likely than not that the Company will realize the net deferred tax assets. Net operating loss carryforwards do not begin to expire until 2003 and general business tax credits until 2009. While management is not presently aware of any adverse matters, it is possible that the Company's ability to realize the deferred income tax assets could be impaired if there are significant future exercises of non-qualified stock options or the Company were to experience declines in sales and/or profit margins as a result of loss of market share, increased competition or other adverse general economic conditions.

A reconciliation of the provision (benefit) for income taxes follows:

	Fiscal Year
	2000	1999	1998
Expected tax provision at 34%	$ 345,000	$  (52,000)	$ 545,000
Permanent differences	26,000	20,000	27,000
State tax provisions, net of federal benefit	41,000	(6,000)	64,000
Tax effect of general business tax credits	(309,000)	(265,000)	(245,000)
Other, net	---	187,000	28,000
Provision (benefit) for income taxes	$ 103,000	$ (116,000)	$ 419,000
	=======	=======	=======

The Company estimates that at December 31, 2000, the federal tax net operating loss carryforward was approximately $916,000 (which principally relates to the tax benefit from the exercise of non-qualified stock options, the benefit of which was recognized through paid-in capital), which is available for utilization in various years through 2011.

(10) Stockholders' Equity

The Company has authorized 10,000,000 shares of $.002 par value preferred stock. None of the preferred stock has been issued. The rights, preferences and dividend policy have not been established and are at the discretion of the Company's Board of Directors.

The Company has authorized 20,000,000 shares of common stock at a par value of $.002 per share. In connection with an offering of common stock in 1993, the Company issued to the underwriters warrants to purchase 67,500 common shares of the Company. The warrants expired on November 22, 1998, with none having been exercised.

In May 1989, the Company's shareholders approved the Eateries, Inc. Omnibus Equity Compensation Plan ("the Plan"), which was amended in June 1994 by approval of the shareholders. The Plan consolidated the Company's equity based award programs, which are described as follows:

DIRECTOR OPTION PLAN

Non-qualified stock options granted and outstanding include 411,397 director options. Under the Plan, each director receives options to purchase 50,000 shares of common stock upon initial election to the Board of Directors. These options vest over a five-year period at 20% per year and expire five years from the date vested (last expiring in 2007). Any director who has served as a director of the Company for five years, upon election for any additional terms, shall be granted an option to purchase 10,000 shares of common stock for each additional year elected. These options fully vest after one year of additional service by the director and expire five years from the date vested (last expiring in 2004).

MANAGEMENT OPTIONS

Non-qualified stock options granted and outstanding include 539,500 management options, which are vested over three- to five-year periods and expire five years from the date vested (last expiring in 2008). A summary of stock option activity under the Plan is as follows:

	Number of Shares	Exercise Price Per Share		Weighted Average Exercise Price
Outstanding at December 27, 1998 (of which approximately     528,652 options are exercisable at weighted average     prices of $3.08)	828,662	$1.00	$6.88	$3.29
Granted	141,000	2.88	4.00
Options exercised:
Director	(15,225)	$1.00		$1.00
Management	(15,000)	$2.88		$2.88
Forfeited	(40,000)	$2.88	$4.99	$3.65
Outstanding at December 26, 1999 (of which approximately     663,427 options are exercisable at weighted average     prices of $3.425)	899,437	$ 1.00	$6.88	$3.38
Granted	169,500	$2.34	$4.00	$2.81
Options exercised:
Director	(7,030)	$1.00		$1.00
Management	(30,000)	$2.81		$2.81
Forfeited	(81,000)	$3.25	$6.00	$4.46
Outstanding at December 31, 2000 (of which approximately 639,397     options are exercisable at weighted average prices of $3.36)	950,897	$1.00	$6.88	$3.22
	=====	====	====	====

As of December 31, 2000, the Plan provides for issuance of options up to 2,533,775 shares and has 303,648 shares of common stock reserved for future grant under the Plan.

RESTRICTED MANAGEMENT OPTIONS

As of December 31, 2000 and December 26, 1999, there were 170,000 restricted stock options (not granted under the Plan) which had original vesting dates from 1999 to 2000 and expire eight years from the date vested (last expiring in 2008). Certain options include an acceleration feature, which allowed for all or a portion of the options to vest in 2000, based on certain performance criteria. Based on these performance criteria, 70,000 of these options vested in 2000. A summary of restricted stock option activity is as follows:

	Number of Shares	Exercise Price Per Share		Weighted Average Exercise Price
Outstanding at December 27, 1998 (of which 10,000   options are exercisable at a price of $3.13 per option   share)	170,000	$  3.13	$  6.00	$  5.66
Granted	-	-	-	-
Outstanding at December 31, 2000 and December 26,   1999 (of which 20,000 options are exercisable at a   price of $3.13 per option share and 60,000 are exercisable at a   price of $6.00 per option share)	170,000	$  3.13	$  6.00	$  5.66
	=======	=======	=======	=======

EMPLOYEE STOCK PURCHASE PLAN

In June 1994, the Company's shareholders approved the Employee Stock Purchase Plan under the Company's Omnibus Equity Compensation Plan. The Employee Stock Purchase Plan enables substantially all employees to subscribe to shares of common stock on an annual offering date at a purchase price of 85% of the fair market value of the shares on the offering date or, if lower, 85% of the fair market value of the shares on the exercise date, which is one year from the annual offering date. A maximum of 200,000 shares are authorized for subscription over the ten-year term of the plan (30,000 shares reserved for issuance at December 31, 2000, for the offering period ending on November 30, 2000). During 2000, 1999 and 1998, 23,170, 30,790 and 17,736 shares, respectively, were issued under the Plan.

STOCK BONUS PLAN

The Plan provides for up to 200,000 shares of stock to be awarded to non-executive employees at the Compensation Committee's discretion over specified future periods of employment. A total of 179,039 shares have been issued under the Plan leaving 20,961 shares available for issuance.

TREASURY STOCK TRANSACTIONS

As provided for in each stock option agreement, option holders can satisfy amounts due for the exercise price and applicable required withholding taxes on the exercise by delivery to the Company shares of common stock having a fair market value equal to such amounts due to the Company. During 2000 and 1998 the Company acquired 10,070 and 1,200 common shares, respectively, in lieu of cash for such amounts due to the Company related to the exercise of stock options. (Also see Note 9 regarding the tax benefits from the exercise of stock options.)

PRO FORMA INFORMATION FOR STOCK OPTIONS

Following are pro forma net income and earnings per share as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994, under the fair value method. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 2000, 1999 and1998, respectively: risk-free interest rates of 4.85%, 6.51% and 4.82% a dividend yield of 0%; volatility factors of the expected market price of the Company's common stock of .90, .65 and .44 and a weighted average expected life of the options of 7.5 years. The weighted average grant date fair value of options issued in 2000, 1999 and 1998 was $2.12, $1.88 and, $5.97, respectively.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options and stock purchase plan have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options and stock purchase plan.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:

	2000	1999	1998
Pro forma net income (loss)	$625,823	$(373,531)	$ 990,676
Pro forma net income (loss) per common share	$      0.21	$        (0.12)	$       0.25
Pro forma net income (loss) per common share     assuming dilution	$      0.02	$      (0.12)	$       0.24

STOCK REPURCHASES

In April 1997, the Company's Board of Directors authorized the repurchase of up to 200,000 shares of the Company's common stock. In July 1997, an additional 200,000 shares were authorized for repurchase. In 1997, the Company purchased 55,100 shares for an aggregate purchase price of approximately $160,000. In 1998, an additional 35,700 shares were repurchased for an aggregate purchase price of approximately $182,000. In 1999, an additional 39,462 shares were repurchased for an aggregate purchase price of approximately $214,000.

In February 1999, the Company's Board of Directors authorized the repurchase of 1,056,200 shares of its common stock from Astoria Capital Partners, L.P., Montavilla Partners, L.P., and MicroCap Partners L.P. ("Sellers") for a purchase price of $5.125 per share or an aggregate purchase price of $5,413,025. The shares purchased from the Sellers represented 26.7% of the outstanding common stock of the Company, prior to the transaction. The purchase price was financed by the Company through a term loan with a bank (See Note 6).

In January 2001, subsequent to year ended December 31, 2000 the Company repurchased 67,500 shares of its common stock for $2.125 per share.

STOCK PUT AGREEMENTS

In April 1997, the Company entered into stock put agreements with two of its executive officers (who also serve on the Company's Board of Directors). Under the agreements, in the event of the officer's death while an employee of the Company, their respective estate or other legal representative has the right (but not the obligation) to compel the Company to purchase all or part of the common stock owned by or under stock option agreements with the deceased officer or the members of their immediate families (i.e. spouse or children) or controlled by any of them through trusts, partnership corporations or other entities on the date of their death. The per share purchase price payable by the Company for common stock purchased under the agreements is the greater of the highest closing stock price during the 60 days preceding the officer's death or two times the net book value per share as of the last day of the calendar month immediately preceding the officer's death. In any event, the total purchase price cannot exceed the proceeds payable to the Company from the key man life insurance policy maintained on the life of the respective officer. The maximum commitment as of the date of this report is $5,570,000.

(11) Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:

	2000	1999	1998
Numerator:
Net income	$ 910,868	$  (38,140)	$1,183,187
Denominator:
Denominator for basic       earnings per share-       weighted average shares       outstanding	3,044,195	3,151,279	3,941,728
Dilutive effect of nonqualified       stock options	100,320	----	235,345
Denominator for diluted      earnings per share	3,144,515	3,151,279	4,177,073
	=======	=======	=======
Basic earnings per share	$ 0.30	$   (0.01)	$ 0.30
	=======	=======	=======
Diluted earnings per share	$ 0.29	$   (0.01)	$ 0.28
	=======	=======	=======

As of December 26, 1999, there were outstanding options and warrants to purchase 227,500 shares of common stock at prices ranging from $6.00 per share to $6.88 per share, which were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive. Dilutive earnings per share were equivalent to basic earnings per share in 1999 due to the net loss for the year causing the impact of options and warrants to be anti-dilutive.

12. Contingencies

In the ordinary course of business, the Company is subject to legal actions and complaints. In the opinion of management, based in part on the advice of legal counsel, and based on available facts and proceedings to date, the ultimate liability, if any, arising from such legal actions currently pending will not have a material adverse effect on the Company's financial position or future results of operations.

(13) Quarterly Financial Information (unaudited)

(In thousands except per share data)

		First Quarter	Second Quarter	Third Quarter	Fourth Quarter	Annual
2000:
	Total revenues	$25,108	$24,797	$25,069	$29,631	$104,605
	Gross profit	18,295	18,082	18,314	21,595	76,286
	Net income	324	(181)	(361)	1,017	911
	Net income per common share	0.11	(0.06)	(0.08)	0.33	0.30
	Net income per common share     assuming dilution	0.10	(0.06)	(0.08)	0.32	0.29
1999:
	Total revenues	$23,074	$22,887	$23,216	$25,401	$94,578
	Gross profit	16,804	16,626	16,805	18,502	68,737
	Net income (loss)	247	(336)	(518)	569	(38)
	Net income (loss) per common share	0.07	(0.11)	(0.18)	0.19	(0.01)
	Net income (loss) per common     share assuming dilution	0.07	(0.11)	(0.18)	0.19	(0.01)
1998:
	Total revenues	$23,500	$21,347	$21,266	$23,072	$89,185
	Gross profit	17,172	15,578	15,433	16,742	64,925
	Net income	534	246	3	400	1,183
	Net income per common share	0.14	0.06	0.00	0.10	0.30
	Net income per common share     assuming dilution	0.13	0.06	0.00	0.10	0.28

EX-10.1 2 ex.htm EXHIBIT 10.1

EMPLOYMENT CONTRACT

EMPLOYMENT CONTRACT, dated as of January 22, 2001, between EATERIES, INC., an Oklahoma corporation (the "Company"), and VINCENT F. ORZA, JR., an Oklahoma resident ("ORZA").

ORZA currently serves as the President, and CEO of the Company under a three year Employment Contract dated January 1, 1995 and extended to December 31, 2000;

The Company desires to enter into a new three (3) year Employment Contract with ORZA to be effective on January 1, 2001 in substitution of his existing three year Employment Agreement and ORZA desires to accept such Employment Contract in accordance with the terms and conditions hereinafter set forth.

NOW THEREFORE, ORZA and the Company, in consideration of the mutual covenants and promises herein contained do hereby agree as follow:

1. Term. The Company shall employ ORZA, and ORZA shall serve as the President and CEO of the Company, on the terms and conditions of this Employment Contract for a three (3) year term commencing January 1, 2001, and ending December 31, 2003, unless extended or terminated earlier as hereinafter provided. The initial three (3) year Term of this Employment Contract shall be automatically extended for one (1) additional calendar year on the 31st day of each December during Term hereof unless ORZA is given written notice by the Compensation Committee of the Board of Directors of the Company sixty (60) days prior to the 31st day of December that the Term is not to be thus automatically extended for one (1) additional year. If thus extended each year, then on January 1st of each year, this Employment Contract shall have three (3) years remaining to the Term hereof.

2. Duties and Services. During the Term hereof ORZA shall be employed in the business of the Company as President and CEO and shall perform such services diligently, faithfully and consistent with the responsibilities of such positions. In performance of his duties ORZA shall report to the Board of Directors of the Company. ORZA shall be available to travel as the needs of the business require.

3. Compensation.

(a) Salary. As a compensation for his services hereunder, the Company shall pay ORZA, during the Term, a salary payable in equal bi-weekly installments at the annual rate of $325,000.00, subject to annual re-evaluation by the Compensation Committee of the Board of Directors of the Company. The annual re-evaluation shall be based in part upon the attainment of corporate objectives mutually agreed upon by ORZA and the Board of Directors of the Company. Nothing contained herein shall preclude ORZA from participating in future executive bonus plans, pension or profit sharing, deferred compensation, stock option, or other employee benefit plans of the Company, if he meets the eligibility requirements therefor.

(b) Options. As additional compensation ORZA has been granted nonqualified options of Eateries, Inc. ORZA shall be entitled to additional grants of nonqualified stock options of Eateries, Inc. upon approval of the Compensation Committee of the Board of Directors of the Company.

4. Expenses and Vacation. ORZA shall be entitled to reimbursement for reasonable travel and other out-of-pocket expenses necessarily incurred in the performance of his duties hereunder, upon submission and approval of written statements and bills in accordance with the then regular policies and procedures of the Company. ORZA shall be entitled to a car allowance payable in equal bi-weekly installments of $325.00 commencing January 1, 2001. ORZA shall be entitled to reasonable vacations in accordance with the then regular policies and procedures of the Company governing executives.

5. Representations and Warranties of ORZA. ORZA represents and warrants to the Company that (a) he is under no contractual or other restriction or obligation which is inconsistent with the execution of this Contract, the performance of his duties hereunder, or the other rights of the Company hereunder and (b) he is under no physical or mental disability that would hinder his performance of duties under this Employment Contract.

6. Confidential Information. All trade secrets, or other proprietary or confidential information which ORZA may now possess, may obtain during or after the Term hereof, or may create prior to the end of the period ORZA is employed by the Company under this Contract or otherwise relating to the business of the Company or its affiliates shall not be published, disclosed, or made accessible by him to any other person, firm, or corporation either during or after the termination of his employment or used by him except during the Term hereof in the business and for the benefit of the Company. ORZA shall return all tangible evidence of such trade secrets, or other proprietary or confidential information to the Company prior to or at the termination of his employment. "Trade secrets" shall include, but not be limited to recipes developed or utilized by the Company, as well as methods of operations developed and utilized by the Company.

Additionally, during the Term hereof, ORZA shall not acquire, directly or indirectly, any interest in any restaurants with concepts similar to Company restaurants, unless specifically authorized by the Board or Directors of the Company in writing. Notwithstanding the foregoing, ORZA shall not be prevented from owning any securities of any competitor of the Company which are regularly traded on any national securities exchange or in the over-the-counter market; provided, that the same shall not result in ORZA and his immediate family owning, legally or beneficially, at any time, ten percent (10%) or more of the voting securities of any such company. In the event that the provisions of this section should ever be deemed to exceed the time, geographic or occupational limitations permitted by applicable law, then such provisions shall be reformed to the maximum time, geographic, or occupational limitations permitted by applicable law.

7. Termination. Notwithstanding anything herein contained, if on or after the date hereof and prior to the end of the Term hereof,

(a) either (i) ORZA shall be physically or mentally incapacitated or disabled or otherwise unable fully to discharge his duties hereunder for a period of six (6) months, (ii) ORZA shall be convicted of a felony crime by a court of last resort, (iii) ORZA shall commit any act or omit to take any action in bad faith and to the substantial detriment of the Company, or (iv) ORZA shall breach any term of this Contract and such breach shall directly cause a material adverse impact upon the Company and he shall fail to cure and correct such breach within ten (10) days after notice to ORZA by the Company of the same, or such longer period as may be necessary with due diligence to cure such breach then, and in each case, the Company shall have the right to give notice of termination of ORZA's services hereunder as of a date (not earlier than ten (10) days from such notice in the case of items (ii), (iii) or (iv) and not earlier than six (6) months from such notice in the case of item (i) to be specified in such notice and this Agreement shall terminate on the date so specified; or

(b) ORZA shall die, then this Employment Contract shall terminate on the date of ORZA death,

Whereupon ORZA or his estate, as the case may be, shall be entitled to receive only his salary at the rate provided in Section 3 to the date on which termination shall take effect. In the event of ORZA's death, his estate or designated beneficiary shall receive, in addition to the foregoing amount, an amount equal to two (2) year's salary payable by the Company upon receipt of the life insurance proceeds of ORZA's key man insurance policy, if any and if not sufficient then within ninety (90) days of ORZA's death.

8. Merger, Et Cetera. In the event of a future disposition of (or including) the properties and business of the Company, substantially as an entirety, by merger, consolidation, sale of assets, or otherwise, then the Company may elect:

(a) To assign this Contract and all of its rights and obligations hereunder to the acquiring of surviving entity; provided that such entity shall be capable of assuming and performing and shall assume in writing and perform all of the obligations of the Company hereunder; provided further that the Company (in the event and so long as it remains in business as an independent going enterprise) shall remain liable for the performance of its obligations hereunder in the event of an unjustified failure of the acquiring entity to perform its obligations under this Contract; and provided finally that the duties assigned ORZA are commensurate with those held prior to the merger and that a relocation of more than 50 miles from the city limits of the City of Oklahoma City, is not required to fulfill such duties; or

(b) In addition to its other rights of termination, to terminate this Contract upon at least sixty (60) days' written notice by paying ORZA two (2) year's salary and car allowance at the rate provided in Section 3 and 4 on the date which such termination shall take effect.

9. Liquidation Damages. The parties hereto covenant and agree that, in the event the Company shall breach the terms of this Employment Contract or the Contract shall terminate under Section 8 (b), it shall pay to ORZA, as liquidated damages for such breach or termination, an amount equal to that which would have been received by him under Section 3(a) and 4 for then remaining Term of this Employment Contract, plus reasonable attorneys' fees, if any. Such amount shall be promptly paid upon a determination of breach or termination, but in no event later than thirty (30) days after such determination.

10. Survival. The covenants, agreements, representation, and warranties contained in or made pursuant to this Employment Contract shall survive ORZA's termination of employment, irrespective of any investigation made by or on behalf of any party.

11. Modification. This Employment Contract sets forth the entire understanding of the parties with respect to the subject matter hereof, and may be modified only by a written instrument duly executed by each party.

12. Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be mailed by certified mail, return receipt requested, or delivered against receipt, to the party to whom it is to be given at the then address of such party (or to such other address as the party shall have furnished in writing). Notice to the estate of ORZA shall be sufficient if addressed to ORZA as provided in this Section 12. Any notice or other communication given by certified mail shall be deemed given at the time of certification thereof, except for a notice changing a party's address which shall be deemed given at the time of receipt thereof.

13. Waiver. Any waiver by either party of a breach of any provision of this Contract shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any provision in this Contract. The failure of a party to insist upon strict adherence to any term of this Contract on one or more occasions shall not be considered a waiver or deprive that party of the right hereafter to insist upon strict adherence to that term or any other term of this Contract. Any waiver must be in writing and signed by the parties.

14. Binding Effect. ORZA's rights and obligations under this Contract shall not be transferable by assignment or otherwise, such rights shall not be subject to commutation, encumbrance, or the claims of ORZA's creditors, and any attempt to do any of the foregoing shall be void. The provisions of this Contract shall be binding upon and inure to the benefit of ORZA and his heirs and personal representatives, and shall be binding upon and inure to the benefit of the Company and its successors and those who are its assigns.

15. No Third Party Beneficiaries. This Employment Contract does not create, and shall not be construed as creating, any rights enforceable by any person not a party to this Employment Contract (except as provided in Section 14).

16. Headings. The headings in this Employment Contract are solely for the convenience of reference and shall be given no effect in the construction or interpretation of this Contract.

17. Counterparts: Governing Law. This Employment Contract may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. It shall be governed by and construed in accordance with the laws of the State of Oklahoma, without given effect to the conflict of laws.

IN WITNESS WHEREOF, the parties have duly executed this Employment Contract as of the date first above written.

"COMPANY"

EATERIES, INC., an Oklahoma corporation

By: /s/

Vice President

"ORZA"

_/s/

VINCENT F. ORZA, JR.

As approved by a vote of the Compensation Committee of the Board of Directors of Eateries, Inc. on January 10, 2001.

EX-10.2 3 ex2.htm EXHIBIT 10.2 4:

EMPLOYMENT CONTRACT

EMPLOYMENT CONTRACT, dated as of January 22, 2001, between EATERIES, INC., an Oklahoma corporation (the "Company"), and JAMES M. BURKE, an Oklahoma resident ("BURKE").

BURKE currently serves as the Vice President-Operations of the Company under a three year Employment Contract dated October 1, 1995 and extended to December 31, 2000;

The Company desires to enter into a new three (3) year Employment Contract with BURKE to be effective on January 1, 2001 in substitution of his existing three year Employment Agreement and BURKE desires to accept such Employment Contract in accordance with the terms and conditions hereinafter set forth.

NOW THEREFORE, BURKE and the Company, in consideration of the mutual covenants and promises herein contained do hereby agree as follow:

1. Term. The Company shall employ BURKE, and BURKE shall serve as the Vice President-Operations of the Company, on the terms and conditions of this Employment Contract for a three (3) year term commencing January 1, 2001, and ending December 31, 2003, unless extended or terminated earlier as hereinafter provided. The initial three (3) year Term of this Employment Contract shall be automatically extended for one (1) additional calendar year on the 31st day of each December during Term hereof unless BURKE is given written notice by the Compensation Committee of the Board of Directors of the Company sixty (60) days prior to the 31st day of December that the Term is not to be thus automatically extended for one (1) additional year. If thus extended each year, then on January 1st of each year, this Employment Contract shall have three (3) years remaining to the Term hereof.

2. Duties and Services. During the Term hereof BURKE shall be employed in the business of the Company as Vice President-Operations and shall perform such services diligently, faithfully and consistent with the responsibilities of such positions. In performance of his duties BURKE shall report to the Board of Directors of the Company. BURKE shall be available to travel as the needs of the business require.

3. Compensation.

(a) Salary. As a compensation for his services hereunder, the Company shall pay BURKE, during the Term, a salary payable in equal bi-weekly installments at the annual rate of $200,000.00, subject to annual re-evaluation by the Compensation Committee of the Board of Directors of the Company. The annual re-evaluation shall be based in part upon the attainment of corporate objectives mutually agreed upon by BURKE and the Board of Directors of the Company. Nothing contained herein shall preclude BURKE from participating in future executive bonus plans, pension or profit sharing, deferred compensation, stock option, or other employee benefit plans of the Company, if he meets the eligibility requirements therefor.

(b) Options. As additional compensation BURKE has been granted nonqualified options of Eateries, Inc. BURKE shall be entitled to additional grants of nonqualified stock options of Eateries, Inc. upon approval of the Compensation Committee of the Board of Directors of the Company.

4. Expenses and Vacation. BURKE shall be entitled to reimbursement for reasonable travel and other out-of-pocket expenses necessarily incurred in the performance of his duties hereunder, upon submission and approval of written statements and bills in accordance with the then regular policies and procedures of the Company. BURKE shall be entitled to a car allowance payable in equal bi-weekly installments of $235.00 commencing January 1, 2001. BURKE shall be entitled to reasonable vacations in accordance with the then regular policies and procedures of the Company governing executives.

5. Representations and Warranties of BURKE. BURKE represents and warrants to the Company that (a) he is under no contractual or other restriction or obligation which is inconsistent with the execution of this Contract, the performance of his duties hereunder, or the other rights of the Company hereunder and (b) he is under no physical or mental disability that would hinder his performance of duties under this Employment Contract.

6. Confidential Information. All trade secrets, or other proprietary or confidential information which BURKE may now possess, may obtain during or after the Term hereof, or may create prior to the end of the period BURKE is employed by the Company under this Contract or otherwise relating to the business of the Company or its affiliates shall not be published, disclosed, or made accessible by him to any other person, firm, or corporation either during or after the termination of his employment or used by him except during the Term hereof in the business and for the benefit of the Company. BURKE shall return all tangible evidence of such trade secrets, or other proprietary or confidential information to the Company prior to or at the termination of his employment. "Trade secrets" shall include, but not be limited to recipes developed or utilized by the Company, as well as methods of operations developed and utilized by the Company.

Additionally, during the Term hereof, BURKE shall not acquire, directly or indirectly, any interest in any restaurants with concepts similar to Company restaurants, unless specifically authorized by the Board or Directors of the Company in writing. Notwithstanding the foregoing, BURKE shall not be prevented from owning any securities of any competitor of the Company which are regularly traded on any national securities exchange or in the over-the-counter market; provided, that the same shall not result in BURKE and his immediate family owning, legally or beneficially, at any time, ten percent (10%) or more of the voting securities of any such company. In the event that the provisions of this section should ever be deemed to exceed the time, geographic or occupational limitations permitted by applicable law, then such provisions shall be reformed to the maximum time, geographic, or occupational limitations permitted by applicable law.

7. Termination. Notwithstanding anything herein contained, if on or after the date hereof and prior to the end of the Term hereof,

(a) either (i) BURKE shall be physically or mentally incapacitated or disabled or otherwise unable fully to discharge his duties hereunder for a period of six (6) months, (ii) BURKE shall be convicted of a felony crime by a court of last resort, (iii) BURKE shall commit any act or omit to take any action in bad faith and to the substantial detriment of the Company, or (iv) BURKE shall breach any term of this Contract and such breach shall directly cause a material adverse impact upon the Company and he shall fail to cure and correct such breach within ten (10) days after notice to BURKE by the Company of the same, or such longer period as may be necessary with due diligence to cure such breach then, and in each case, the Company shall have the right to give notice of termination of BURKE's services hereunder as of a date (not earlier than ten (10) days from such notice in the case of items (ii), (iii) or (iv) and not earlier than six (6) months from such notice in the case of item (i) to be specified in such notice and this Agreement shall terminate on the date so specified; or

(b) BURKE shall die, then this Employment Contract shall terminate on the date of BURKE's death,

Whereupon BURKE or his estate, as the case may be, shall be entitled to receive only his salary at the rate provided in Section 3 to the date on which termination shall take effect. In the event of BURKE's death, his estate or designated beneficiary shall receive, in addition to the foregoing amount, an amount equal to two (2) year's salary payable by the Company upon receipt of the life insurance proceeds of BURKE's key man insurance policy, if any and if not sufficient then within ninety (90) days of BURKE's death.

8. Merger, Et Cetera. In the event of a future disposition of (or including) the properties and business of the Company, substantially as an entirety, by merger, consolidation, sale of assets, or otherwise, then the Company may elect:

(a) To assign this Contract and all of its rights and obligations hereunder to the acquiring of surviving entity; provided that such entity shall be capable of assuming and performing and shall assume in writing and perform all of the obligations of the Company hereunder; provided further that the Company (in the event and so long as it remains in business as an independent going enterprise) shall remain liable for the performance of its obligations hereunder in the event of an unjustified failure of the acquiring entity to perform its obligations under this Contract; and provided finally that the duties assigned BURKE are commensurate with those held prior to the merger and that a relocation of more than 50 miles from the city limits of the City of Oklahoma City, is not required to fulfill such duties; or

(b) In addition to its other rights of termination, to terminate this Contract upon at least sixty (60) days' written notice by paying BURKE two (2) year's salary and car allowance at the rate provided in Section 3 and 4 on the date which such termination shall take effect.

9. Liquidation Damages. The parties hereto covenant and agree that, in the event the Company shall breach the terms of this Employment Contract or the Contract shall terminate under Section 8 (b), it shall pay to BURKE, as liquidated damages for such breach or termination, an amount equal to that which would have been received by him under Section 3(a) and 4 for then remaining Term of this Employment Contract, plus reasonable attorneys' fees, if any. Such amount shall be promptly paid upon a determination of breach or termination, but in no event later than thirty (30) days after such determination.

10. Survival. The covenants, agreements, representation, and warranties contained in or made pursuant to this Employment Contract shall survive BURKE's termination of employment, irrespective of any investigation made by or on behalf of any party.

11. Modification. This Employment Contract sets forth the entire understanding of the parties with respect to the subject matter hereof, and may be modified only by a written instrument duly executed by each party.

12. Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be mailed by certified mail, return receipt requested, or delivered against receipt, to the party to whom it is to be given at the then address of such party (or to such other address as the party shall have furnished in writing). Notice to the estate of BURKE shall be sufficient if addressed to BURKE as provided in this Section 12. Any notice or other communication given by certified mail shall be deemed given at the time of certification thereof, except for a notice changing a party's address which shall be deemed given at the time of receipt thereof.

13. Waiver. Any waiver by either party of a breach of any provision of this Contract shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any provision in this Contract. The failure of a party to insist upon strict adherence to any term of this Contract on one or more occasions shall not be considered a waiver or deprive that party of the right hereafter to insist upon strict adherence to that term or any other term of this Contract. Any waiver must be in writing and signed by the parties.

14. Binding Effect. BURKE's rights and obligations under this Contract shall not be transferable by assignment or otherwise, such rights shall not be subject to commutation, encumbrance, or the claims of BURKE's creditors, and any attempt to do any of the foregoing shall be void. The provisions of this Contract shall be binding upon and inure to the benefit of BURKE and his heirs and personal representatives, and shall be binding upon and inure to the benefit of the Company and its successors and those who are its assigns.

15. No Third Party Beneficiaries. This Employment Contract does not create, and shall not be construed as creating, any rights enforceable by any person not a party to this Employment Contract (except as provided in Section 14).

16. Headings. The headings in this Employment Contract are solely for the convenience of reference and shall be given no effect in the construction or interpretation of this Contract.

17. Counterparts: Governing Law. This Employment Contract may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. It shall be governed by and construed in accordance with the laws of the State of Oklahoma, without given effect to the conflict of laws.

IN WITNESS WHEREOF, the parties have duly executed this Employment Contract as of the date first above written.

"COMPANY"

EATERIES, INC., an Oklahoma corporation

By: /s/                                                 
President

"BURKE"

By:/s/                                                 
JAMES M. BURKE

As approved by a vote of the Compensation Committee of the Board of Directors of Eateries, Inc. on January 10, 2001.

EX-10.3 4 ex3.htm EXHIBIT 10.3

OPTION AGREEMENT

THIS OPTION AGREEMENT ("Agreement") is made and entered into as of the 1^st day of January 2001, by EATERIES, INC., an Oklahoma corporation (the "Company"), and BRAD GROW ("Awardee"), an Oklahoma resident.

The Company and Awardee agree as follows:

1. Grant of Option.  The Company grants to Awardee options to purchase a total of 210,000 shares of the common stock of the Company (the "Option Shares") the first 60,000 options at an exercise price of $6.00 per share (the "Stock Options") representing the market price on August 14, 1998 and the next 150,000 options at an exercise price of $2.50 the market price on December 31, 2000. The Stock Options are NOT awarded pursuant to the Company's Omnibus Equity Compensation Plan (the "Plan").

2. Present & Future Options. Subject to the terms and conditions stated in this Agreement, the Stock Options shall vest, and Awardee shall have the right to exercise the Stock Options, in varied increments. A (28.57) percent increment (60,000 shares) have vested and became exercisable on June 1, 2000 ("First Increment"); thereafter, an additional (28.57) percent increment (60,000 shares) shall vest and become exercisable on January 2, 2001 (second increment); thereafter, (14.29) percent increments (30,000 shares) shall vest and become exercisable on June 1, 2001, June 1, 2002, and June 1, 2003. If Awardee ceases to be an employee of the Company for any reason prior to the date any or all of the annual installments have vested, the Stock Options shall be forfeited and expire with respect to the unvested portion. Exercise rights shall be cumulative, meaning that any vested but unexercised Stock Options from prior years may be exercised without reducing the rate at which Stock Options vest and become exercisable.

3. Term. The Stock Options shall expire upon the earlier of: (a) expiration prior to vesting as specified by paragraph 2 above; (b) the fifth anniversary of the date on which they first became exercisable; or (c) if the Stock Options were exercisable at the time the Awardee ceased to be an employee of the Company, ninety (90) days after Awardee ceases to be an employee of the Company for any reason unless such cessation of employment shall be caused by Awardee's voluntary termination of employment or the Company's termination of the employment of the Awardee "for cause," in which events the Stock Options shall cease to be exercisable immediately upon termination of employment. As used herein, Awardee shall be terminated "for cause" if Awardee (i) commits a material act of dishonesty, fraud, misrepresentation, or other act of moral turpitude, (ii) is guilty of gross carelessness or misconduct, (iii) has been convicted of a felony crime, (iv) refuses to obey the clear and lawful direction of the Company's President, or (v) acts in a way that has a direct, substantial, and adverse effect on the Company's reputation.

4. Method of Exercise. To exercise the Stock Options, Awardee shall give the Company written notice of the exercise of the options, in substantially the form attached hereto as Exhibit A. Awardee shall pay the appropriate exercise price for the Option Shares at the time of the notice of the exercise of the Stock Options in cash or in such other consideration as the Company's Compensation Committee (the "Committee") determines is consistent with the purpose of this Agreement and applicable law. The Company shall issue or shall have its transfer agent issue one or more certificates for the Option Shares purchased within thirty (30) business days after exercise. The Committee may establish other requirements to provide reasonable procedures for the exercise of the Stock Options.

5. Transferability of Options. Awardee shall not have the right to transfer all or any part of the Stock Options except by will or pursuant to the laws of descent and distribution or to a trust or family partnership for estate planning purposes.

6. Reimbursement for Withholding Liabilities. Subsequent to the granting of the Stock Options to Awardee pursuant to this Agreement, Awardee shall have the obligation to reimburse the Company for any withholding liabilities for Federal, state, and local income taxes, social security taxes, and any other taxes which it may incur as a result of the granting, vesting, and/or exercise of the Stock Options. Awardee shall reimburse the Company for those amounts within thirty (30) days after his receipt of a written accounting of the amounts due. Awardee shall satisfy the tax withholding reimbursement obligation with cash.

7. Transfer Restrictions. Awardee acknowledges that the Stock Options and the underlying common stock have not been registered with state or federal securities agencies. Awardee is acquiring the Stock Options, and will acquire the common stock, for investment and not with a view to the distribution thereof. The Company has not promised to register either the Stock Options or the underlying common stock.

8. Modification. This Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof, supersedes all existing agreements between them concerning such subject matter, and may be modified only by a written instrument duly executed by each party.

9. Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be mailed by certified mail, return receipt requested, or delivered against receipt, to the party to whom it is to be given at the address of such party set forth in the records of the Company (or to such other address as the party shall have furnished in writing). Notice to the estate of Awardee shall be sufficient if addressed to Awardee as provided in this paragraph 9. Any notice or other communication given by certified mail shall be deemed given at the time of certification thereof, except for a notice changing a party's address which shall be deemed given at the time of receipt thereof.

10. Acceleration of Vesting. In the event of a Change in Control prior to June 1, 2003, all of the Awardee's options shall accelerate and vest.

11. Change in Control. For purposes of this Agreement, "Change in Control" shall mean a change in control of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Act"), whether or not the Company is then subject to such reporting requirement; provided that, without limitation, a Change in Control shall be deemed to have occurred if any individual, partnership, firm, corporation, association, trust, unincorporated organization, or other entity, or any syndicate or group deemed to be a person under Section 14(d)(2) of the Act, who is not as of the date of this Agreement the "beneficial owner" (as defined in Rule 13d-3 of the General Rules and Regulations under the Act), directly or indirectly, of securities of the Company representing fifty-one percent (51%) or more of the combined voting power of the Company's then outstanding securities entitled to vote in the election of directors of the Company becomes such a fifty-one percent (51%) beneficial owner.

IN WITNESS WHEREOF, the parties hereto have executed this Option Agreement as of the day and year first set forth above.

COMPANY:

EATERIES, INC.

By:
Vincent F. Orza, Jr., President

AWARDEE:

Bradley L. Grow

EXHIBIT A

NOTICE OF EXERCISE OF STOCK OPTIONS

The undersigned hereby gives notice to Eateries, Inc. (the "Company") of exercise of the stock options issued to him pursuant to the terms of the Stock Option Agreement between the Company and the undersigned, dated as of                           , to purchase            shares of the common stock of the Company. The undersigned has enclosed a check for $           and delivers            shares of the Company's common stock held of record by him and having a fair market value of $           as payment of the purchase price for the shares of common stock.

DATED this            day of                           , 20     .

EX-10.4 5 ex4.htm EXHIBIT 10.4

LEASE

This Lease is made and entered into this 1 day of May, 1999, by and between Eateries, Inc. "EATS" (together referred to as "Tenant"), and Great Places L.L.C. "GPLLC"., an Oklahoma Limited Liability Company ("Landlord").

WITNESSETH:

In consideration of the mutual covenants and agreements contained in this Lease and the due and faithful performance of each and all the terms, covenants and conditions contained herein, Landlord and Tenant agree as follows:

ARTICLE 1

Leased Premises

Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the building, the parking lot, driveways, and other improvements, more particularly described on attached Exhibit "A," (the "Premises") located at 1220 S. Santa Fe, Edmond, Oklahoma.

ARTICLE 2

Term

(A) Initial Term: This Lease shall be effective on June 1, 1999, the "Rent Commencement Date," and the initial term of this Lease shall extend to the date fifteen years from the Rent commencement Date ("Initial Term"), unless sooner terminated or extended as herein provided. The term "Lease Year" as used herein shall be defined as twelve months beginning on the Rent Commencement Date. Each successive Lease Year shall be that twelve-month period following the end of the first Lease Year.

(B) Option to Extend: As part of the consideration for the execution of this Lease by Tenant, and conditioned upon Tenant having performed all of its obligations hereunder, and provided Tenant is not at the time of exercise of any such option to extend in default hereunder, Landlord hereby grants to Tenant one option to extend the Initial Term for a period of five years, upon the same terms and I I conditions, with rent at the rate as paid in the last year of the initial fifteen year term plus the cumulative CPI increase or $20 per square foot whichever is greater. If Tenant elects to exercise the option to extend this Lease, it shall notify Landlord of its intention in writing not less than six months before the expiration of the Initial Term.  Except as otherwise specifically stated in this Lease, the term of this Lease shall include the Initial Term and any extension, renewal or holdover thereof.

ARTICLE 3

Use

(A) The Premises shall be used only for the purposes of maintaining office space. In connection therewith, Tenant shall be in compliance at all times with all applicable statutes and ordinances.

(B) Tenant shall, during the term of this Lease, operate its business on the Premises with reasonable due diligence and efficiency in a first-class and professional manner; provided, however, that this provision shall not apply if the Premises should be closed and the business of Tenant therein be temporarily shut down on account of strikes, lockouts, acts of God, repairing, cleaning, decorating or remodeling or causes beyond the control of Tenant; and provided, however, that this shall in no way affect Tenant's other obligations under this Lease, including but not limited to the payment of Rent.

ARTICLE

4 Rent

(A) Tenant agrees to pay to Landlord as rental payments "Rent"; $8,900 per month ($106,800 annually) for years one (1) through three (3), $10,383 per month ($124,600 annually) for years four (4) through year six (6), $11,867 per month ($142,400 annually) for years seven (7) through year ten (10), and $13,350 per month ($160,200 annually) or the year one rate increased by the cumulative increase in the CPI, whichever is greater, for years eleven (11) through year fifteen (15) . The monthly rental shall be paid in advance, without demand, on the first day of each calendar month during the term of this Lease prorated on a per diem basis for a fraction of any month. The prorated rent for the first fractional month of the Initial Term shall be paid on the execution of this Lease, if applicable.

As used in this lease, the term "CPI" or "Consumer Price Index" shall mean the average for urban wage earnings and clerical workers, all items, sub-groups, and special groups of items as promulgated by the Bureau of Labor Statistics of the United States Department of Labor, using the year 1999 as a base of 100.

In the event that the Consumer Price Index ceases to incorporate a significant number of items, or if a substantial change is made in the method of establishing the CPI, then the CPI shall be adjusted to the figure that would have resulted had no change occurred in the manner of computing the CPI. In the event that the CPI (or a successor or substitute index) is not available, a reliable governmental or other nonpartisan publication, evaluating the relevant information used in determining the CPI, shall be used in lieu of the CPI.

Where required in this Lease, the cumulative increase in the CPI will be calculated by determining the percentage increase in the CPI during the period of time from the base year of 1999 through the year next previous to the year in which the rental amount is to be calculated.

(B) Tenant and Landlord agree that no security deposit will be required.

(C) All sums of money to be paid Landlord by Tenant under this lease will be considered Rent. Any payment of Rent made more than fifteen days after it is due will earn interest at 15% per annum ("Default Rate").

ARTICLE 5

Indemnity - Insurance by Tenant

(A) Tenant covenants with Landlord that Landlord shall not be liable for any damage or liability of any kind or for any damage or injury to persons or property during the term of this Lease from any cause whatsoever by reason of the use, occupancy and enjoyment of the Premises by Tenant or any person thereon or any person holding under Tenant, and Tenant hereby indemnifies and saves harmless Landlord from all liability whatsoever on account of any such damage or injury and from all liens, claims, and demands arising out of the use of the Premises; provided, however, that Tenant shall not be liable for damage or injury occasioned by reason of the negligent acts or omissions of Landlord, its agents, servants, employees or contractors and Landlord agrees to hold Tenant harmless therefrom, including attorneys fees and costs of defense.

(B) Tenant further covenants and agrees that it will carry and maintain, during the entire term hereof, at Tenant's sole cost and expense, Rent, the following types of insurance, in the amount specified and in the form hereinafter provided for:

(1) Public Liability and Property Damage: During the term of this Lease, Tenant shall procure and maintain in full force and effect, at its sole cost, bodily injury and property damage liability insurance with coverage limits of not less than $2,000,000.00 combined, and $500,000.00 each occurrence, insuring against any and all liability of the insured with respect to the Premises or arising out of the maintenance, use or occupancy thereof. All such bodily injury liability insurance and property damage liability insurance may be provided under umbrella-type policies maintained by Tenant.

(2) Fire and Extended Coverage Insurance: Tenant agrees that it will, during the term hereof, at its sole expense, keep in full force and effect upon the Premises fire insurance with Special Extended Coverage written by a responsible insurance company authorized to do business in the state where the Premises are located in an amount not less than one hundred percent of the replacement cost of the Restaurant, including furniture, fixtures, equipment and any alterations or additions to the Premises whether owned by Tenant or Landlord. All fire and extended coverage insurance which Tenant is obligated to maintain shall be for the benefit of Landlord and Tenant. In the case of loss or damage by fire or other risks insured against, such insurance proceeds shall be paid to and become the property of Landlord, except that Tenant shall be entitled to the replacement cost of Tenant's Property as defined in Article 10 hereof.

(3) Policy Form: All policies of insurance provided for herein shall be issued by insurance companies with general policyholder's rating of not less than A and a financial rating of not less than class XII as rated in the most current available Best's Insurance Reports, and shall be qualified to do business in the state in which the Premises are located. All such policies shall be issued in the name of Tenant and shall name Landlord as an additional insured thereunder, which policies shall be for the mutual and joint benefit and protection of Landlord and Tenant to the extent of their respective interests in the Premises. Certificates of such insurance shall be delivered to Landlord. As often as any such policy shall expire or terminate, renewal or additional policies shall be procured and maintained by Tenant in like manner and to like extent. All policies of insurance shall contain a provision that the company writing said policy will give to Landlord twenty days' notice in writing in advance of any cancellation or lapse or the effective date of any reduction in the amounts of insurance.

(4) Mutual Waiver of Subrogation: Landlord and Tenant, hereby grant to each other, on behalf of any insurer providing fire and all-risk coverage to either of them covering the Premises or contents of the Premises, a mutual waiver of any right of subrogation any such insurer of one party may acquire against the other by virtue of payments of any loss under such insurance, such a waiver to be effective so long as each is empowered to grant such waiver under the terms of its insurance policy or policies involved without payment of additional premium. Each party will notify the other in the event of cancellation of such provision, and such waiver shall stand mutually terminated as of the date either Landlord or Tenant ceases to be so empowered.

ARTICLE 6

Not Used

ARTICLE 7

Taxes

(A) Tenant agrees to pay as Rent during the term of this Lease, before any fine, penalty, interest or cost may be added thereto, or becomes due or is imposed by operation of law for the nonpayment thereof, all taxes, assessments or impositions, license and permit fees and other governmental charges, general or special, ordinary or extraordinary, unforeseen and foreseen, of any kind and nature whatsoever, levied and assessed upon the Premises and personal property therein. Upon request Tenant shall provide Landlord with copies of tax receipts or similar evidence of Tenant's payments thereof or if requested by Landlord, shall deliver to Landlord a check made payable to the taxing authority within seven days after Landlord's request but in no event more than thirty days before such payment is due.

Taxes for the first fractional year of the Lease Term and for the last year of the term hereof shall be prorated between Landlord and Tenant so that Tenant shall be responsible for the payment of only those taxes accruing during the term of this Lease. With respect to any assessments which may be levied against or upon the Premises or which under the laws then in force may be evidenced by improvements or other bonds, or may be paid in annual installments, only the amount of such annual installment (with appropriate proration for any partial year) and statutory interest shall be included within the computation of the annual taxes and assessments levied against the premises.

(B) Nothing herein contained shall require Tenant to pay income taxes assessed against Landlord, or any capital levy, corporation franchise, excess profits, estate, succession, inheritance or transfer taxes of Landlord.

(C) Landlord agrees that Tenant retains the right, at Tenant's sole cost and expense, to contest the legality or validity of any of the taxes, assessments, levies or other public charges to be paid by Tenant which are not being contested by Landlord, and in the event of any such contest, the failure on the part of Tenant to pay any such tax, assessment, levy or charge promptly when the same becomes due and payable shall not constitute a default hereunder, and Tenant upon final determination of such contest, shall immediately pay and discharge any judgment rendered against it, together with all costs and charges incidental thereto.

(D) Tenant shall also pay when due any sales, use, transaction, rent, excise or other taxes levied or imposed upon, or measured by, amounts payable by Tenant to Landlord under this Lease other than income taxes imposed upon Landlord.

ARTICLE 8

Triple-net Lease

This Lease is a "Triple-net Lease" and requires the Tenant to pay or reimburse Landlord, should Landlord advance such costs and expenses, all costs associated with the premises including but not limited to, all utilities, insurance, taxes, and repairs and maintenance as described in Articles 5, 7, and 14 of this Lease respectively.

ARTICLE 9

Changes alterations and Additions/Compliance with Laws

(A) Tenant shall have the right at any time and from time to time during the term of this Lease to make non-structural changes, alterations and additions to the interior of the Premises; provided, however, that Tenant shall make no changes or alterations costing more than $100,000.00 without first obtaining the written consent of Landlord, which consent shall not be unreasonably withheld or delayed, nor shall such changes materially diminish the value of the Premises.

(B) No such change, alteration or addition shall be undertaken or commenced until Tenant shall have procured and paid for all required permits and licenses of all governmental authorities having jurisdiction.

(C) All work done in connection with any change, alteration or addition shall be done with

I reasonable diligence, in good workmanlike manner and in compliance with all applicable laws and regulations of all governmental authorities having jurisdiction. The cost of any such change, alteration or addition shall be paid or discharged by Tenant so that the Premises at all tunes shall be free of any and all liens resulting therefrom, and Tenant's all-risk coverage for the Premises shall be accordingly increased to cover such modifications.

ARTICLE 10

Mechanic's Liens

(A) Tenant shall pay or cause to be paid all costs for work done by it or caused to be done by it on the Premises, and Tenant shall keep the Premises free and clear of all mechanic's liens and other liens due to work done for Tenant or persons claiming under Tenant. Tenant shall indemnify and save Landlord harmless from all liability, loss, damage, costs, attorneys' fees and all other expenses on account of claims of lien of laborers or materialmen or others for work performed or material or supplies furnished for Tenant or persons claiming under Tenant and Landlord shall have a similar obligation to Tenant for work or material furnished to Landlord.

(B) Within thirty days after the filing of any mechanic's lien or claim of lien, Tenant shall either: have discharged the lien from the Premises by payment or by recording a sufficient bond as provided by law, or have purchased and delivered to Landlord a title insurance policy insuring Landlord against the lien. If a final judgment establishing the validity or existence of a claim or lien for any amount is entered, Tenant shall pay and satisfy the same immediately.

(C) If Tenant shall fail to comply with the requirements of subparagraph (B) above, Landlord shall have the right, but not the obligation, to pay the lien or claim of lien, regardless of any dispute over its validity, and the amounts so paid, together with reasonable attorneys' fees and any other costs or expenses incurred in connection with the lien, shall be immediately due and payable from Tenant to Landlord.

(D) Should any lien claims be filed against the Premises or any action affecting the title to the Premises be commenced, the party receiving notice of such lien or action shall forthwith give the other party written notice thereof.

(E) All references herein to "Lien" or "mechanic's lien" shall refer only to a mechanic's lien or claim of lien which states that work has been completed on the Premises and payment has not been forthcoming, and shall not include any statutory notice of record which are for the sole purpose of stating that work has commenced on the Premises.

ARTICLE 11

Signs

Tenant shall be allowed to affix and maintain building signs and free standing monument signs on the Premises as approved from time to time by any requisite governmental agency.

ARTICLE 12

Fixtures and Personal Property

All of Tenant's personal property within the Premises, including furniture, furnishings, and equipment and except property installed or attached to the Premises at Tenant's expense, (collectively "Tenant's Property"), shall remain the property of Tenant, and Tenant shall have the right to remove any and all of Tenant's Property at any time during or upon the termination of the term hereof for purposes of replacement otherwise. Tenant shall maintain adequate equipment to conduct the business permitted in Article 3 and to conform with regulatory requirements concerning equipment. Tenant shall promptly repair any damage occasioned to the Premises by reason of the removal of Tenant's Property. Any of Tenant's property not removed from the Premises before thirty days after the expiration of the initial term will become the property of Landlord, who may dispose of it as Landlord sees fit, but Tenant will pay storage and disposition costs thereof. As required by Landlord, Tenant will remove any fixtures installed by Tenant at the expiration of the partial term as the same may be extended, promptly repairing any damage caused by such removal. All remaining fixtures will become Landlord's property.

ARTICLE 13

Assigning, Mortgaging. Subletting,

(A) Tenant shall not assign, transfer, mortgage, pledge, hypothecate or encumber this Lease or Tenant's interest in and to the Premises or any part thereof or sublet all or any portion of the Premises without first procuring the written consent of Landlord, which consent shall not be unreasonable withheld or delayed, provided that Tenant shall continue to remain liable to Landlord under this Lease. Any attempted transfer, assignment or subletting without the written consent of Landlord shall be void and confer no rights upon any third person.

(B) Each transfer, assignment or subletting to which there has been consent shall be by an instrument in writing in a form and substance satisfactory in Landlord's reasonable judgment. The transferee, assignee or sublessee shall agree in writing for the benefit of Landlord herein to assume, to be bound by and to perform the terms, covenants and conditions of this Lease to be done, kept and performed by Tenant.

(C) Notwithstanding the foregoing, Tenant shall have the right, without Landlord's consent, to assign or transfer this Lease or sublet the Premises or any part thereof to a successor corporation of Tenant, to any corporation into which or with which Tenant merges or consolidates, or to any parent, subsidiary or affiliated corporation, including any corporation which controls or is under the control of Tenant, or to any franchisee of Tenant or of any corporation affiliated with Tenant; provided that any such assignee or subtenant shall deliver to Landlord a copy of a document satisfactory in Landlord's reasonable judgment under which such assignee or subtenant agrees to assume and perform all of the terms and conditions of this Lease on Tenant's part to be performed from and after the effective date of the assignment or sublease, and further provided that Tenant shall guarantee the financial performance of the assignee under this Lease.

ARTICLE 14

Repairs and Maintenance

(A) Subject to the provisions of Article 15, Tenant shall at its own cost and expense, as Rent, keep and maintain the Premises, including the parking area and all grounds surrounding the building on the Premises in good and sanitary order, condition and repair, and make all necessary repairs and replacements to the Premises, including the parking areas and such grounds, including but not limited to roof, pipes, heating, air conditioning and ventilation systems, plumbing system, windowglass, windows, ceilings, interior walls, floors, skylights, doors, cabinets, draperies, carpeting and other floorcoverings, electrical wiring, light fixtures and switches and all other fixtures and all the appliances and appurtenances and all landscaping, lawn maintenance and watering systems belonging thereto. All maintenance, repairs, and replacements shall be done in a first-class manner at least equal in quality to the original work. In the event Tenant shall default in performing maintenance, repairs or replacements, Landlord may (but shall not be so required) perform such maintenance, repairs or replacements for Tenant's account, and the expenses thereof shall constitute and be immediately due and payable as additional rent.

Landlord shall not be obligated to make any repairs, replacements, alterations, additions or improvements in or to the Premises or grounds of the Premises except for any damage caused by the negligence of Landlord or its agents, servants, employees or contractors. Tenant may, after having given thirty days prior written notice to Landlord, repair any such damage caused by the negligence of Landlord or its agents, servants, employees or contractors and deduct such costs from the next payment of rent due hereunder, so long as Landlord is not diligently pursuing such repair.

ARTICLE 15

Reconstruction

(A) In the event the Premises shall be destroyed by fire or any other perils, Tenant shall:

1.  Within a period of sixty days thereafter, commence repair, reconstruction and restoration of the Premises and prosecute the same diligently to complete in accordance with plans prepared by Tenant and approved by Landlord, which approval shall not be unreasonable withheld or delayed, in which event this Lease shall continue in full force and effect and for such purpose Landlord shall make available to Tenant the proceeds of all insurance received by Landlord with respect to such destruction, or

2.  In the event more than 33 1/3 percent of the then replacement value of the Premises is destroyed within the last three years of the Initial Term or during the last three years of any extended term, either Landlord or Tenant (provided it is not then in default hereunder) may at its option elect to terminate this Lease by giving written notice of such termination to the other parry within thirty days after such destruction, in which event this Lease shall terminate upon the giving of such notice, and all insurance proceeds attributable to the Premises (except for that portion attributable to Tenant's Property) shall be payable to Landlord and neither party shall thereafter have any further rights or obligations hereunder.

(B) Upon any termination of this Lease under any of the provisions of this Article, the parties shall be released thereby without further obligations to the other parry coincident with the surrender of possession of the Premises to Landlord except for items which have theretofore accrued and remain unpaid.

ARTICLE 16

Bankruptcy - Insolvency

Tenant agrees that in the event all or substantially all of Tenant's assets are placed in the hands of a receiver or trustee, and such receivership or trusteeship continues for period of ninety days, or should Tenant make an assignment for the benefit of creditors or be finally adjudicated a bankrupt, or should Tenant institute any proceedings under the Bankruptcy Code as the same now exists or under any amendment thereof which may hereafter be enacted, or under any other act relating to the subject of bankruptcy wherein Tenant seeks to be adjudicated a bankrupt, or to be discharged of its debt, or to effect a plan of liquidation, composition or reorganization, or should any involuntary proceeding not be removed within one hundred twenty days thereafter, then this Lease or any interest in and to the Premises shall not become an asset in any and all rights or remedies of Landlord hereunder or by law provided, it shall be lawful for Landlord to declare the term hereof ended and to reenter the Premises and take possession thereof and remove all persons therefrom, and Tenant shall have no further claim thereon or hereunder.

ARTICLE 17

Defaults/Remedies

Tenant's Default; Landlord's Remedies and Lien

(A) Tenant's Default. This Lease is made upon the condition that Tenant shall punctually and faithfully perform all of the covenants, conditions and agreements to be performed by Tenant as set forth in this Lease. The following shall each be deemed to be an event of default (an "Event of Default"):

    (a) The failure of Tenant to pay the Rent, or any installment thereof, if such failure continues for ten (10) days after such payment is due, without the necessity of Landlord giving Tenant notice of any such failure, which notice Tenant hereby waives:

    (b) Repetition or continuation of any failure to timely pay any Rent, where such failure shall continue or be repeated for two (2) consecutive months, or more than four (4) times in any period of twelve (12) consecutive months (As used in this subsection (b) "timely" shall mean when due, without regard to any grace period as provided in subsection (a) above);

    (c) The failure of Tenant to observe or perform any of the covenants, terms or conditions set forth in Article 13 relating to assignments, mortgaging, and subletting) or when such failure continues for a period of fifteen (15)' days, without the necessity of Landlord giving Tenant notice of any such failure, which notice Tenant hereby waives;

    (d) The failure of Tenant to observe or perform any other covenant, term or condition set forth in this Lease when said failure continues for a period of fifteen (15) days after written notice thereof from Landlord to Tenant, or if such failure cannot reasonably be cured within fifteen (15) days, when said failure continues for a period of sixty (60) days after written notice thereof from Landlord to Tenant provided that Tenant commences to cure said failure within such fifteen (15) day period and continues diligently to pursue the curing of the same until completed.

    (e) The commencement of levy, execution, attachment or other process of law upon, on or against the estate created in Tenant hereby; the appointment of a liquidator, receiver, custodian, sequestrator, conservator, examiner, trustee or other similar officer for Tenant, and the continuation of such appointment for a period of thirty (30) days, or the insolvency of Tenant or any assignment by Tenant for the benefit of creditors;

    (f) The commencement of a case by or against Tenant under any insolvency, bankruptcy, creditor adjustment or debtor rehabilitation laws, whether state or federal, or the determination by Tenant to request relief under any insolvency proceeding, including any insolvency bankruptcy, creditor adjustment or debtor rehabilitation laws, whether state or federal. Such commencement or determination by Tenant shall terminate the estate created in Tenant hereby and neither this Lease nor the premises shall become as asset in any such proceeding;

    (g) Tenant's failure to pay when due and payable, all taxes, assessments and government charges imposed upon it or which it is required to withhold and pay over, without the necessity of Landlord giving Tenant notice of any such failure, which notice Tenant hereby waives;

    (h) The enactment of any rent control law or ordinance which requires reductions in any Rent payable hereunder or which prohibits, or reduces the amount of, any increase of Rent provided for in this Lease; and

    (i) The repetition of any failure to observe or perform any one or more of the covenants, terms or conditions hereof (whether or not any such failure is specified in subsections (a) through (i) above) more than four (4) times, in the aggregate, in any period of twelve (12) consecutive months, without regard to any required notice and/or grace period which may be provided herein. Notwithstanding the foregoing, Landlord shall not be required to give Tenant any notice or period to cure any failure or other circumstance described above before exercising Landlord's remedies hereunder if Landlord in good faith reasonable believes that emergency action is necessary to prevent loss of or injury to persons or property or to prevent the incurrence of a cost or expense which Landlord reasonable believes Tenant will be unable or unwilling to pay. In such event Landlord may exercise such remedies and take such other action as it deems reasonable appropriate and shall promptly thereafter give Tenant notice thereof. 

(B) No Waiver; Remedies.  Landlord's failure to insist upon strict performance of any covenant, term or condition of this Lease or to exercise any right or remedy shall not be deemed (i ) a waiver of any default or breach hereunder so long as the same shall continue to exist, or (ii) a waiver or relinquishment for the future of such performance, right or remedy. Upon an Event of Default above, have the following remedies in addition to all other rights and remedies specified elsewhere in this Lease and which may now or hereafter provided by law or equity, to which Landlord may resort cumulatively, successively or in the alternative:

Landlord may decline to retake possession of the Leased Premises and may sue for the Rent as such Rent becomes due or sue for the present value of the Rent to accrue under this Lease and other damages or remedies to which Landlord may be entitled.

Landlord may elect to retake possession of the Leased Premises and, without initially reletting the Leased Premises, sue for damages in an amount equal to the present value of the Rent to accrue under this Lease and other damages or remedies to which Landlord may be entitled.

Landlord may retake possession of the Premises, relet the Premises and sue for damages. During the period of time that Landlord is trying to relet the Premises, Tenant will be liable for damages in an amount equal to the full Rent. Landlord may sue from time to time for the rent and/or damages which accrue under this Lease, or may sue for the present value of the total rent and /or damages which will be due or which may be sustained throughout the remaining term in accordance with the measure of damages set forth below. The election to sue either periodically or for the total amount shall be at the sole option and discretion of Landlord. In any action brought by Landlord to recover rent and/or damages, Tenant waives to the fullest extent permitted by law any applicable statute of limitations.

Landlord may elect to seek declaratory relief, specific performance and/or injunctive relief (prohibitive or mandatory) with respect to any covenant, term or condition set forth in this Lease.

Landlord may terminate this Lease, re-enter the Property and take possession thereof, remove all persons and property therefrom, and sue for damages, in which event Tenant shall have no further claim or right hereunder.

( C ) Provisions Regarding Landlord's Remedies. The following provisions shall apply with respect to Landlord's remedies:

Landlord's re-entry or taking of possession of the Leased Premises shall not be construed as an election to terminate this Lease unless Landlord gives written notice of such termination. Notwithstanding any reletting without termination, Landlord may, at any time after a reletting and subject to the provisions herein, elect to deem this Lease terminated for any then uncured default. Any re-entry or taking of possession by Landlord shall not affect or diminish the ongoing obligation or liability of Tenant for all Rent and other obligations due and owing under this Lease. Re-entry by the Landlord will not obligate the Landlord to mitigate damages by reletting, unless otherwise provided by applicable law. Wherever in this Lease Landlord has reserved or is granted the right of re-entry into the Premises, the use of such word is not intended, nor shall it be construed to be limited to its technical legal meaning.

If Landlord re-enters, it may take possession of the Premises, remove all persons and property from the Premises and store such property at Tenant's expense or resort to legal process without being deemed guilty of trespass or becoming liable for any loss or damage occasioned thereby. Tenant agrees that if Landlord stores such property, Landlord shall have a lien thereon pursuant to 42 Okla. Stat. 91.

Landlord may relet the Premises or any part thereof for such term or terms (which may extend beyond the Term), and at such rentals and upon such other terms and conditions as Landlord in its sole discretion deems advisable and such reletting shall not in any way relieve Tenant from the obligations and liabilities under this Lease. Any and all amounts received upon such reletting and all rentals received by Landlord therefrom shall be applied first to any indebtedness owed by Tenant to Landlord other than Rend due hereunder, then to pay any cost and expense of reletting, including brokers' and attorneys' fees and costs of alterations and repairs, then to the Rend due hereunder. If there is any residue, it shall be applied ( i ) to any other damage incurred by Landlord as a result of Tenant's default, or (ii) if this Lease is not terminated, to any deficiencies between the rentals received and the Rent that may become due hereunder. In such latter event, any funds due Tenant shall be paid at the expiration of the Term. It is understood that said funds shall not draw interest while held by Landlord as security for Tenant's obligations hereunder.

To the extent permitted by law, Tenant waives any right of redemption, re-entry or repossession and any defense of merger.

Landlord may pursue one or more remedies against Tenant and need not elect its remedy until such time as findings of fact have been made by a judge or jury, whichever is applicable, in a trial court of competent jurisdiction.

The covenant to pay Rent and other amounts hereunder and to perform all obligations hereunder are independent covenants from the other terms and provisions of this Lease and Tenant shall have no right to hold back, offset or fail to pay any such amounts for any alleged default by Landlord or for any other reason whatsoever.

After any default under this Lease, Landlord may accept any partial payment of the sums then due under this Lease without prejudice to its rights to collect the balance of the sums then due and without prejudice to any other right or remedy Landlord may have.

(D) Damages Upon Termination. If Landlord elects to terminate this Lease, Landlord may recover from Tenant the following damages, in addition to its other remedies:

    (i) Any unpaid Rent which has been earned as of the time of such termination, including interest thereon at the Default Rate; plus

    (ii) The amount by which any unpaid Rent which would have been earned after termination through the date of judgment exceeds the greater of (A) the amount of rent that Tenant proves could have been reasonable obtained by Landlord upon a reletting of the Leased Premises for such period, or (B) the amount of rent actually received by Landlord for such period, together with interest thereon at the Default Rate; plus

    (iii) The amount by which the Rent which would have accrued for the balance of the Term after the date of judgment exceeds the amount of rent that tenant proves could be reasonably obtained by Landlord for such period, reduced to present value at the Default Rate; plus

    (iv) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom including, without limitation, the cost of repairing the Premises, the cost of reletting the Premises (including, without limitation, the cost of remodeling and brokers' fees), and reasonable attorneys' fees; plus

    (v) At Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable state law. Damages shall be due and payable from the date of termination.

(E) Landlord's Self-Help. In addition to Landlord's rights of self-help set forth elsewhere in this Lease, if Tenant at any time fails to perform any of its obligations under this Lease in a manner reasonable satisfactory to Landlord, Landlord shall have the right, but not the obligation, upon giving Tenant at least three (3) days' prior notice of its election to do so (but in the event of any emergency, no prior notice shall be required), to perform such obligations on behalf of and for the account of Tenant and to take all such action to perform such obligations. In such event, Tenant shall reimburse Landlord on demand the costs and expenses incurred by Landlord in connection therewith as additional Rent, with interest thereon from the dates) such costs and expenses are incurred until paid at the Default Rate. The performance by Landlord of any such obligation shall not constitute a waiver of any default by Tenant or a release of Tenant therefrom.

(F) Landlord's Agents. In exercising any rights hereunder or taking any actions provided for herein, Landlord may act through its employees, agents or independent contractors as authorized by Lender.

(G) Landlord's Lien. Tenant hereby grants to Landlord a lien and security interest on all property of Tenant now or hereafter placed in or upon Premises including, but not limited to, all fixtures, machinery, equipment, furnishings and other articles of personal property now or hereafter placed in or upon the Leased Premises by or on behalf of Tenant, and all proceeds of the sale or other disposition of such property (collectively, the "Collateral") and such property shall be and remain subject to such lien and security interest of Landlord to secure the payment of all Rent and other sums agreed to be paid by Tenant herein. Said lien and security interest shall be in addition to and cumulative of any Landlord's lien provided by law. This Lease shall constitute a security agreement under the Oklahoma Uniform Commercial Code (the "UCC") so that Landlord shall have and may enforce a security interest in the Collateral. Tenant agrees to execute as debtor such financing statements and continuation statements and any further documents as Landlord may now or hereafter reasonably request in order that such security interest(s) may be and remain perfected pursuant to the UCC. Landlord may at its election at any time file a copy of this Lease as a financing statement. Landlord, as secured party, shall be entitled to all of the rights and remedies afforded a secured parry under the UCC, which rights and remedies shall be in addition to and cumulative of any Landlord's liens and rights provided by law or by the other terms and provisions of this Lease.

ARTICLE 18

Condemnation

If any portion of the Premises is taken by appropriation for public use under right of eminent domain, or if a voluntary conveyance is made to the condemning authority in lieu of eminent domain proceedings, Landlord and Tenant agree that their respective rights shall be governed as follows:

(A) In the event that a taking occurs which, in the reasonable judgment of Landlord does not substantially impair Tenant's use of the Premises, Landlord shall be entitled to retain the entire proceeds from the eminent domain proceeding (except for any portion attributable to Tenant's Property as defined in Article 12 hereof or damage to or interruption of Tenant's business), but it shall be obligated to repair or restore the Premises required by any alteration or damage resulting from such taking, and Rent will not abate.

(B) In the event a taking occurs which, in the reasonable judgment of Landlord substantially impairs Tenant's use of the Premises, Tenant shall have the right to terminate this Lease upon thirty days notice to Landlord but notice shall be given no later than the date title vests in the condemning authority.

In no event shall Tenant have any claim against Landlord for any portion of the award paid by the condemning authority, whether for the fee or the leasehold, as a result of such taking or conveyance under threat of condemnation, and Tenant does hereby assign to Landlord all of Tenant's right, title and interest in and to any and all amounts so paid or awarded except for any award made specifically to Tenant by the condemning authority for loss or interruption of Tenant's business or Tenant's Property as defined in Article 12 hereof or for the cost of moving all of the same, or for the unamortized cost of Tenant's leasehold improvements paid for by Tenant and depreciated on a straight-line basis over the term of this Lease.

ARTICLE 19

Quiet Enjoyment - Covenants

Tenant, upon payment of all rent and observing and keeping all the covenants, agreements and conditions of this Lease on its part to be kept, shall quietly have and enjoy the Premises during the term of this Lease, without hindrance or molestation by anyone claiming by, from, through or under Landlord, subject and subordinate, however, to the exceptions, reservations and conditions of this Lease.

ARTICLE 20

Notices and Payment of Rent

Whenever in this Lease it shall be required or permitted that notice or demand be given or served by either parry to this Lease to or on the other parry, such notice or demand shall be given or served by personal delivery or by certified or registered mail, return receipt requested, postage prepaid, addressed as follows:

TO LANDLORD: 

Great Places, L.L.C.
2001 Cambridge Way
Edmond, Oklahoma 73013

WITH COPY TO: 

Max C. Tuepker, Esq.
204 N. Robinson, 25'h Floor
Oklahoma City, Oklahoma 73102

TO TENANT: 

Eateries, Inc.
1220 S. Santa Fe
Edmond, Oklahoma

WITH COPY TO: 

Tom Golden
Hall, Estill, Gable, Golden & Nelson
320 S. Boston Avenue, Suite 400
Tulsa, Oklahoma 74103-3708

Every notice, demand, request or communication hereunder which is given by personal delivery shall be deemed given as of the date and time of such personal delivery, and every notice, demand, request or communication hereunder sent by mail in the manner described above shall be deemed to have been given or served upon mailing. All rent and other payments shall be either delivered or sent by first-class mail and paid by Tenant to Landlord at the address above provided. Either party may change its address by giving written notice to the other parties in the manner described in this Article.

ARTICLE 21

Obligations of Successors

The parties hereto agree that all the provisions hereof are to be construed as covenants and agreements as though the words importing such covenants and agreements were used in each separate paragraph hereof, and that all of the provisions hereof shall bind and inure to the benefits of the parties hereto and their respective legal representatives, successors and assigns.

ARTICLE 22

Force Majeure

Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, inability to obtain labor or materials or reasonable substitutes therefor, governmental restrictions, governmental regulations, governmental controls, judicial orders, enemy or hostile governmental action, civil commotion, fire or other casualty, and other causes beyond the reasonable control of the party obligated to perform, shall excuse the performance by such parry for a period equal to any such prevention, delay or stoppage, except the obligations imposed with regard to Minimum Annual Rental and other charges to be paid by Tenant pursuant to this Lease. It is expressly agreed that any other time limit provision contained in this Lease shall be extended for the same period of time lost by causes hereinabove set forth.

ARTICLE 23

Holding Over

It is hereby agreed that in the event of Tenant holding over after termination of this Lease with the consent of Landlord, the tenancy thereafter shall be from month to month in the absence of a written agreement to the contrary, and such month-to-month tenancy shall be terminable on thirty days written notice given by either Landlord or Tenant. During such month-to-month tenancy, Tenant shall pay to Landlord rent equal to 110 percent of the monthly payment of Minimum Annual Rental paid in the previous lease year.

ARTICLE 24

Estoppel Certificates / Subordination / Non-Disturbance

At any time and from time to time, Landlord on at least seven days prior notice by tenant, and Tenant, on at least seven days prior request by landlord, will deliver to the party making such request a statement in writing certifying that this Lease is unmodified and in full force and effect (or if there shall have been modifications, that the same is in full force and effect as modified and stating the modifications), any other statements typically found in such estoppel certificates which Landlord or Tenant may reasonably request and the date to which the rent and any other deposits or charges have been paid and stating whether or not to the best knowledge of the party executing such certificate, the party requesting such statement is in default in the performance of nay covenant, agreement or condition contained in this Lease and, if so, specifying each such default of which the executing party may ha This Lease Agreement shall be subordinate to any mortgage or other hypothecation for security now or in the future placed on the real property of which the Premises are a part, and to all advances made on such security, and on all renewals, modifications, consolidations, replacements, and extensions of such mortgage or other hypothecation. In spite of such subordination, Tenant's right to quiet possession of the Premises shall not be disturbed if Tenant is not in default and so long as Tenant shall pay the rent and observe and perform all of the provisions of this Lease Agreement, unless this Lease Agreement is otherwise terminated pursuant to its terms.

Tenant also agrees to execute any documents required to effectuate such subordination, and failure to do so within ten (10) days after written demand, does make, constitute, and irrevocably appoint Landlord as Tenant's attorney-in-fact, and in Tenant's name, place, and stead, to do so.

Upon a foreclosure of any mortgage or execution of any deed in lieu of foreclosure, or declaration of Landlord's default under any hypothecation for security and demand by Landlord's successor, Tenant shall attorn to and recognize such successor as Landlord under this Lease Agreement.

ARTICLE 25

Memorandum of Lease

Landlord and Tenant agree that this Lease shall not be recorded but that a Memorandum of Lease describing the Premises and stating the term of this Lease, Tenant's rights of renewal and the addresses of Landlord and Tenant may be executed if desired by either parry, and the same may thereafter be recorded by either Landlord or Tenant. The form of Memorandum is attached hereto as Exhibit "B".

ARTICLE 26

Representations and Warranties

The Landlord makes no representations or warranties regarding the condition and/or fitness for a particular use of the Premises or personal property located on the Premises. Tenant has inspected the Premises and such personal property, and accepts the Premises and all such property in "as is condition." Tenant further agrees to make whatever improvements or alterations at it's own expense to the Premises that would be required to operate in compliance with all Federal and state regulatory requirements. Landlord makes no representations or warranties concerning the ADA or any environmental issues.

ARTICLE 27

Waiver

No waiver of any condition or any legal right or remedy shall be implied by the failure to declare a forfeiture or for any other reason, and no waiver of any condition or covenant shall be valid unless it is in writing and signed by the waiving party. No waiver by either parry of any covenant or condition herein shall constitute a waiver of any further breach or continuance of the same condition or covenant or any other condition or covenant.

ARTICLE 28

Not Used

ARTICLE 29

Not Used

IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease on the day and year first above written.

LANDLORD:

GREAT PLACES, L.L.C.
660: James Burke, Managing Member

TENANT:

EATERIES, INC.
By:_______________________
Vincent F. Orza, Jr. President

State of Oklahoma            )
                                        ) ss:
County of Oklahoma         )

This instrument was acknowledged before me on May 1, 1999, by James Burke, as Managing Member of GREAT PLACES, L.L.C., an Oklahoma limited liability company, on behalf of said limited liability company, as Landlord.

Notary Public

My Commission Expires:

Seal

State of Oklahoma            )
                                        )ss:
County of Oklahoma        )

This instrument was acknowledged before me on May 1, 1999, by Vincent F. Orza, Jr., as President of EATERIES, INC., an Oklahoma corporation, on behalf of said corporation, as Tenant.

Notary Public

My Commission. Expires:

Seal

EX-10.6 6 ex6.htm EXHIBIT 10.6

STANDARD FORM

GARFIELD'S RESTAURANT & PUB

FRANCHISE AGREEMENT

between

Eateries, Inc.

and

_________________________

(Franchisee Name)

FOR

_________________________

(Restaurant Location)

FRANCHISE AGREEMENT

TABLE OF CONTENTS

Page

ARTICLE I FRANCHISE GRANT; TERM AND RENEWAL 1

1.1 Franchise Grant. *

1.2 Initial Term. *

1.3 Renewal. *

1.3.1 *

1.3.2 *

1.3.3 *

1.3.4 *

1.3.5 *

1.3.6 *

ARTICLE II FRANCHISE AND ADVERTISING FEES *

2.1 Franchise Fees. *

2.1.1 Initial Fee. *

2.1.2 Continuing Royalty Fee. *

2.2 Advertising Fees. *

2.3 Form of Payment. *

ARTICLE III DUTIES OF FRANCHISOR *

3.1 Assist Franchisee. *

3.2 Training. *

3.2.1 *

3.2.2 *

3.3 Informational Material. *

3.4 Plans and Specifications. *

3.5 Promotional Material. *

3.6 Garfield's Operations Manual. *

3.7 Quarterly Inspections. *

3.8 No Third Party Reliance. *

ARTICLE IV DUTIES OF FRANCHISEE *

4.1 Attendance at Training Programs. *

4.2 Lease of Premises. *

4.2.1 *

4.2.2 *

4.2.3 *

4.2.4 *

4.2.5 *

4.2.6 *

4.3 Construction of Restaurant. *

4.3.1 *

4.3.2 *

4.3.3 *

4.3.4 *

4.4 Use of Premises. *

4.5 Maintenance of Restaurant. *

4.6 Improvements and Modifications *

4.7 Remodeling of Restaurant. *

4.8 Operation of Restaurant. *

4.8.1 *

4.8.2 *

4.8.3 *

4.8.4 *

4.8.5 *

4.8.6 *

4.8.7 *

4.8.8 *

4.8.9 *

4.9 Purchase of Ingredients, Supplies, and Materials. *

4.9.1 *

4.9.2 *

4.9.3 *

4.9.4 *

4.9.5 *

4.9.6 *

4.9.7 *

4.10 Right to Set-Off. *

4.11 Right to Enter. *

4.12 Accounting and Records. *

4.12.1 Maintenance of Records. *

4.12.2 Financial Reports. *

4.12.3 Other Reports. *

4.12.4 Recordation. *

4.12.5 Examinations. *

4.13 Liquor License. *

4.14 No Waiver. *

ARTICLE V PROPRIETARY MARKS *

5.1 Representations of Franchisor. *

5.1.1 *

5.1.2 *

5.1.3 *

5.2 Agreement of Franchisee. *

5.2.1 *

5.2.2 *

5.2.3 *

5.2.4 *

5.2.5 *

5.2.6 *

5.2.7 *

5.2.8 *

5.2.9 *

5.2.10 *

5.3 Acknowledgments of Franchisee. *

5.3.1 *

5.3.2 *

5.3.3 *

5.3.4 *

5.3.5 *

ARTICLE VI CONFIDENTIAL OPERATIONS *

6.1 Compliance with Manual Standards. *

6.2 Confidentiality of Manual. *

6.3 Property of Franchisor. *

6.4 Maintenance of Manual at Restaurants. *

ARTICLE VII CONFIDENTIAL INFORMATION *

7.1 Proprietary Information. *

7.1.1 *

7.1.2 *

7.1.3 *

7.2 Injunctive Relief. *

7.3 Investments in Publicly Traded Companies. *

7.4 Reforming Provisions. *

7.5 Confidentiality Agreements. *

ARTICLE VIII USE OF NAME; ADVERTISING *

8.1 Advertising Under Trade Name. *

8.2 National Advertising and Marketing Program. *

8.2.1 *

8.2.2 *

8.2.3 *

8.2.4 *

8.2.5 *

8.3 Local Advertising. *

8.4 Cooperative Advertising Campaigns. *

8.5 Opening Promotions. *

8.6 Prior Approval of Franchisor. *

ARTICLE IX INSURANCE *

9.1 Procurement of Policies. *

9.2 Coverage and Amounts. *

9.3 Additional Coverage. *

9.4 Obligation Not Limited. *

9.5 Evidence of Insurance. *

9.6 Authority of Franchisor to Procure Insurance. *

ARTICLE X TRANSFERS OF INTEREST *

10.1 Transfer by Franchisor. *

10.2 Transfer by Franchisee. *

10.2.1 Conditions on Transfer. *

10.2.2 Consent. *

10.2.3 No Security Interest. *

10.3 Right of First Refusal. *

10.3.1 Right. *

10.3.2 Consideration. *

10.4 Transfer Upon Death or Mental Incompetency. *

10.5 Non-Waiver of Claims. *

10.6 Permitted Assignments. *

ARTICLE XI DEFAULT AND TERMINATION *

11.1 Termination by Franchisor Without Notice. *

11.2 Termination by Franchisor with Notice. *

11.2.1 *

11.2.2 *

11.2.3 *

11.2.4 *

11.2.5 *

11.2.6 *

11.2.7 *

11.2.8 *

11.3 Termination by Franchisor with Notice and Opportunity to Cure. *

11.4 Termination by Franchisee. *

ARTICLE XII OBLIGATIONS UPON TERMINATION OR EXPIRATION *

12.1 General Obligations. *

12.1.1 *

12.1.2 *

12.1.3 *

12.1.4 *

12.1.5 *

12.1.6 *

12.1.7 *

12.1.8 *

12.1.9 *

12.1.10 *

12.1.11 *

12.2 Obligations Upon Termination by Franchisee. *

12.3 Refund of Initial Fee Upon Termination. *

ARTICLE XIII AGREEMENTS *

13.1 Best Efforts. *

13.2 Franchisee and Principal Shareholders Agreement

Not to Compete. *

13.3 Franchisor Agreement Not to Compete. *

13.3.1 *

13.3.2 *

13.3.3 *

13.4 Interference with Employment Relations. *

13.5 Reduction of Scope of Agreement. *

13.6 Reforming Provisions. *

ARTICLE XIV TAXES, PERMITS AND INDEBTEDNESS *

14.1 Prompt Payment of Taxes. *

14.2 Bona Fide Dispute. *

14.3 Compliance with Laws. *

14.4 Notification of Legal Proceedings. *

ARTICLE XV FRANCHISEE ORGANIZATION, AUTHORITY,

AND FINANCIAL CONDITION *

15.1 Entity Representations & Warranties. *

15.2 Covenants. *

15.3 Financial Statements. *

15.4 Ownership. *

15.5 Guarantees. *

ARTICLE XVI RELATIONSHIP AND INDEMNIFICATION *

16.1 Relationship. *

16.2 Indemnification. *

ARTICLE XVII GENERAL PROVISIONS *

17.1 Request for Approval. *

17.2 No Liability Assumed. *

17.3 No Waiver. *

17.4 Notices. *

17.5 Entire Agreement. *

17.6 Severability and Construction. *

17.6.1 *

17.6.2 *

17.6.3 *

17.6.4 *

17.6.5 *

17.6.6 *

17.7 Remedies. *

17.8 Force Majeure. *

17.9 Applicable Law. *

17.10 Final and Binding Arbitration. *

17.11 Injunctive Relief; Venue. *

17.12 Legal Fees. *

17.13 Acknowledgments. *

17.13.1 *

17.13.2 *

17.13.3 *

17.13.4 *

SCHEDULE A *

SCHEDULE 15.4 *

SCHEDULE 17.4 *

APPENDIX A *

APPENDIX B AUTHORIZATION AGREEMENT FOR PRE-ARRANGED PAYMENTS *

GARFIELD'S RESTAURANT & PUB
FRANCHISE AGREEMENT

THIS FRANCHISE AGREEMENT (this "Agreement") made and entered into as of this ____ day of ____________, ______ (the "Effective Date"), by and between EATERIES, INC., an Oklahoma corporation ("Franchisor "); ____________________, a ___________________ corporation ("Franchisee"); and ________________________ (collectively the "Principal Shareholders" and individually, a "Principal Shareholder" of Franchisee):

WHEREAS, Franchisor is the owner of certain service marks and trademarks relating to "Garfield's Restaurant & Pub" restaurants, in particular the two federally registered marks "Garfield's" (Registration No. 1,539,694) and "Casey Garfield's" (Registration No. 1,543,014) (the "Proprietary Marks"); and

WHEREAS, Franchisor is engaged in the business of owning, operating and licensing or franchising restaurant/bars utilizing the Proprietary Marks (collectively, the "System"); and, in connection therewith, using and licensing or franchising the use of the Proprietary Marks; and

WHEREAS, Franchisor owns valuable goodwill connected with the System and has formulated and developed methods, trade secrets, designs, processes, technical and operational information, know- how, and other intellectual property relating to the operation and implementation of "Garfield's Restaurant & Pub" (the "Concept"); and

WHEREAS, Franchisor, Franchisee and the Principal Shareholders have entered into a Development Agreement dated ___________, ______ ("Development Agreement"), relating to the development by Franchisee of additional franchises for Garfield's Restaurant & Pub restaurants and/or other franchises offered by Franchisor; within the "Territory" as defined therein; and

WHEREAS, Franchisee desires to be franchised to operate "Garfield's Restaurant & Pub" pursuant to the provisions hereof and the Development Agreement, and at the location of the Restaurant as specified on Schedule A hereof, and Franchisee acknowledges that it has had a full and adequate opportunity to be thoroughly advised of the terms and conditions of this Agreement, and to have its legal counsel review this Agreement.

NOW, THEREFORE, in consideration of the undertakings, commitments and mutual covenants contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, covenant and agree as follows:

ARTICLE I
FRANCHISE GRANT; TERM AND RENEWAL

1.1 Franchise Grant.

Subject to the terms and conditions of this Agreement, Franchisor hereby grants to Franchisee, and Franchisee accepts, the right and license to construct, open and operate a "Garfield's Restaurant & Pub" (the "Restaurant") at the location defined in Schedule A, in accordance with the Concept, as it may be changed, improved and further developed from time to time, and the Proprietary Marks and such other trade secrets, marks and know-how as may be designated from time to time. Franchisee shall have no right under this Agreement to license or grant franchises to others. During the term of this Agreement until its expiration or earlier termination, Franchisor shall not establish a restaurant utilizing the mark "Garfield's Restaurant & Pub" or the Proprietary Marks or license another franchisee to establish such a restaurant, at any location, other than airports, state and federally owned properties, and sports complexes, within the lesser of (i) a three mile radius of the Restaurant or (ii) a radius from the Restaurant which includes a daytime or residential population of 40,000 or more people. Notwithstanding the foregoing, Franchisor may establish a restaurant or may license a restaurant to a third party within the geographic area set forth in the preceding sentence, provided that such restaurant does not utilize the System or the service mark "Garfield's Restaurant & Pub" or the Proprietary Marks. The area consisting of the lesser of (i) or (ii) above is hereinafter referred to as the "Protected Territory").

1.2 Initial Term.

Except as otherwise provided in this Agreement, the initial term of this Agreement shall be for a period of twenty years from the date of execution of this Agreement.

1.3 Renewal

. Franchisee may, at its option, renew the right and license to operate its Restaurant for four additional five-year periods; provided, however, that prior to the end of the applicable term:

1.3.1

Franchisee has given Franchisor written notice of its election to renew not less than twelve months nor more than eighteen months prior to the end of the initial term and each five-year renewal term, as applicable; and Franchisee has made or provided for renovation of the premises of the Restaurant (the "Premises"), as Franchisor may reasonably require, including, without limitation, upgrading of equipment, renovation and modernization of the restaurant building, the premises, signs, fixtures and equipment so as to reflect the then-current design, decor, specifications and standards of the System and the Concept;

1.3.2

Franchisee and the Principal Shareholders are not in default of any provision of this Agreement, any amendment hereof or successor hereto, or any other agreement between Franchisee, Franchisor and the Principal Shareholders, or their subsidiaries and affiliates, and have substantially complied with all of the terms and conditions of such agreements and have exercised all prior renewals during the term and renewal term(s) hereof;

1.3.3

Franchisee and the Principal Shareholders have satisfied all monetary obligations owed by Franchisee to Franchisor and its subsidiaries and affiliates and have timely met these obligations throughout the term of this Agreement; and Franchisee shall present satisfactory evidence that Franchisee has the right to remain in possession of the Premises for the renewal term, or has obtained Franchisor's approval of a new location for the Restaurant;

1.3.4

Franchisee and the Principal Shareholders have executed Franchisor's then-current form of franchise agreement (with appropriate modifications to reflect the granting of a renewal) for the renewal term described in this Section 1. 3, which agreement shall supersede this Agreement in all respects, and the terms of which may differ from the terms of this Agreement, including, without limitation, a higher Continuing Royalty Fee as defined below in subsection 2.1.2;

1.3.5

Franchisee and the Principal Shareholders have executed a general release, in a form prescribed by Franchisor, of any and all claims against Franchisor and its subsidiaries and affiliates, and their respective officers, directors, agents and employees; and

1.3.6

Franchisee has complied with Franchisor's then-current qualification and training requirements.

ARTICLE II
FRANCHISE AND ADVERTISING FEES

2.1 Franchise Fees.

Franchisee shall pay Franchisor the following franchise fees:

2.1.1 Initial Fee.

Upon execution of this Agreement or earlier if required by the Development Agreement, Franchisee shall pay Franchisor a nonrefundable, initial fee of Thirty Thousand Dollars ($30,000) for the Restaurant (the "Initial Fee"). Franchisee shall be given credit towards the Initial Fee for any amounts paid as a Franchise Fee Deposit and/or application fee as allocable to the Restaurant pursuant to the Development Agreement.

2.1.2 Continuing Royalty Fee.

Commencing with the opening of the Restaurant for business to the public, Franchisee shall pay to Franchisor, without set-off, credit, or deduction of any kind, a monthly "Continuing Royalty Fee" of the greater of $3,000.00 per month or 4% of the monthly Gross Receipts (as defined herein) of the Restaurant (prorated during any partial month), due and payable ten business days after month end. The term "Gross Receipts" shall mean the total of all sales of food products, beverages and other merchandise and products to customers of Franchisee, sold at, from and by reason of the Restaurant, including without limitation all vending machines, video game machines and juke box sales, less sales, use or service taxes collected and paid to the appropriate taxing authority and customer refunds made in the ordinary course of business.

2.2 Advertising Fees.

Franchisee shall pay Franchisor the monthly and/or quarterly advertising fees as Franchisor may require pursuant to Article VIII hereof.

2.3 Form of Payment.

The Initial Fee shall be paid by Franchisee or the Principal Shareholders to Franchisor by electronic or wire transfer in U.S. Dollars. All other payments required by this Article II shall be paid by means of an Electronic Depository Transfer Account ("Electronic Depository Transfer Account") pursuant to that certain Authorization Agreement for Pre-Arranged Payments in the form attached hereto as Appendix B, which shall be executed by Franchisee simultaneously with the execution of this Agreement. Immediately following the execution of this Agreement, Franchisee shall set up an Electronic Depository Transfer Account, and Franchisor shall have access to such account for the purpose of receiving payment for any payments required under this Agreement and any other amounts which Franchisee owes to Franchisor (with the exception of the Initial Fee). At least twenty-four hours prior to the date any applicable payment is owed to Franchisor by Franchisee under this Agreement, Franchisee shall make deposits to the Electronic Depository Transfer Account in an amount sufficient to cover the applicable payments owed to Franchisor hereunder. Deposits for any other amounts owned to Franchisor shall be in accordance with the procedures set forth in the Manual.

Any payment not actually received by Franchisor on or before the date due shall be deemed overdue. If any such payment is overdue, Franchisee shall pay Franchisor, in addition to the overdue amount, interest on such amount from the due date until paid at the rate of 18% per annum, provided that the rate shall not in any event exceed the maximum rate permitted by law. Entitlement to such interest shall be in addition to any other remedies Franchisor may have or possess.

ARTICLE III
DUTIES OF FRANCHISOR

3.1 Assist Franchisee.

Franchisor shall assist Franchisee in establishing and maintaining the Restaurant and in familiarizing Franchisee with the proper operation of the Restaurant.

3.2 Training.

3.2.1

Franchisor shall provide, at a location designated by Franchisor, training for Franchisee and/or Franchisee's general manager and all other managers for the Restaurant. The training program will commence at least ten weeks prior to opening of the Restaurant, and will last for eight weeks. The training program syllabus shall be as described in the Garfield's Operations Manual (the "Manual"). Transportation, room and board, compensation and any other expense incurred by Franchisee and its managers in connection with attending the training school will be borne solely by Franchisee. Franchisor will bear the costs relating to its instructors, the training materials and administrative overhead.

3.2.2

Franchisor shall provide to Franchisee during the opening of the Restaurant a kitchen trainer, floor trainer, manager and supervisor. The kitchen trainer will be available for up to four weeks, and all others will be available for up to two weeks. Longer periods are negotiable. Franchisee will bear the expense of transportation, room and board, visas, work permits and local fees and income taxes of such persons. Franchisor will bear the expense of their compensation.

3.3 Informational Material.

Franchisor shall provide Franchisee with such periodic newsletters, bulletins and additional informational material as Franchisor deems advisable. Such additional information will include new recipes and menu items to be added to, or substituted for, recipes and menu items previously furnished to Franchisee.

3.4 Plans and Specifications.

Franchisor shall make available at no charge to Franchisee a preliminary floor plan and design elements for the construction of a typical franchised restaurant and for the exterior and interior design and layout, fixtures, furnishings, and signs. Franchisee will obtain architectural and engineering services independently and at its own expense. Franchisee shall advise Franchisor of, and be responsible for, architectural plans and specifications for the Restaurant, as well as any alterations to the preliminary floor plan and design elements and specifications that may be required to comply with local laws. Franchisor shall have the right to review all such architectural and/or engineering plans which Franchisee obtains and to prohibit the implementation of a plan, or part thereof, which Franchisor, in its sole and absolute discretion, believes is not consistent with the best interests of the System. In the event that Franchisor desires to prohibit the implementation of such plan, or part thereof, Franchisor shall so notify Franchisee within thirty business days of receiving such architectural and/or engineering plans for review. Failure of Franchisor to so notify Franchisee within such thirty business day period shall be deemed to be an approval of such plans. In the event Franchisor does object to any such plan, Franchisor shall provide Franchisee with a reasonable detailed list of changes necessary to make such plans acceptable to Franchisor. Franchisor shall, upon Franchisee's resubmission of such plans with such changes as Franchisee has prepared, notify Franchisee within fifteen business days of receiving such plans whether they are acceptable. Failure to so notify Franchisee within such fifteen business day period shall be deemed to be an approval of such amended plans.

3.5 Promotional Material.

Franchisor shall make available from time to time promotional materials for in store marketing by Franchisee for which Franchisee shall pay the reasonable value thereof, if used. Franchisor must review and approve all advertising and promotional material which Franchisee proposes to use.

3.6 Garfield's Operations Manual.

Franchisor shall loan Franchisee one copy of Franchisor's Manual for use at the Restaurant, subject to the conditions set forth in Article VI hereof. The use of additional copies shall be controlled by Franchisor at fees set by it.

3.7 Quarterly Inspections.

Franchisor seeks to maintain the standards of quality, professionalism, appearance and service of the System and the Concept, and to that end may conduct each calendar quarter an inspection of the Premises and such other periodic inspections as may be desirable, subject to two days prior notice to Franchisee. The cost of such quarterly inspections will be borne by Franchisor; provided, to the extent that Franchisee requests the assistance of Franchisor personnel at times other than the regular quarterly inspections, costs incurred by Franchisor in furnishing such personnel and assistance will be borne by Franchisee.

3.8 No Third Party Reliance.

All of the obligations of Franchisor arising under this Agreement are to Franchisee, and no other party is entitled to rely upon, enforce, or obtain relief for any breach thereof, either directly or by subrogation.

ARTICLE IV
DUTIES OF FRANCHISEE

4.1 Attendance at Training Programs.

Franchisee, the Principal Shareholders and Franchisee's general manager and all other managers must attend training sessions conducted by Franchisor, until, in the judgment of Franchisor, they are sufficiently trained in Franchisor's operating requirements and procedures, including the Concept. The operation and manner of conducting such training school shall be in the manner determined by Franchisor. Transportation, room and board, compensation and any other expense incurred by Franchisee and its managers in connection with attending the training school will be borne solely by Franchisee. Franchisor will bear the costs relating to its instructors, the training materials and administrative overhead.

4.2 Lease of Premises.

In the event Franchisee will occupy the Premises under a lease, sublease, or other contract of tenancy with a third party (the "Lease"), Franchisee shall, at least thirty days prior to the execution of the Lease, submit the Lease in the English language to Franchisor for its written approval, which Lease shall be for a term at least as long as the initial term of this Agreement and shall include such terms and conditions as Franchisor may reasonably request to protect its interest in the Restaurant, the System and the Concept including, without limitation, the following provisos:

4.2.1

A provision reserving to Franchisor the right, at Franchisor's election, to receive an assignment of the leasehold interest upon termination or expiration of the franchise grant;

4.2.2

A provision that expressly permits the lessor of the Premises to provide Franchisor all sales and other information it may have related to the operation of the Restaurant, as Franchisor may request;

4.2.3

A provision that requires the lessor of the Premises concurrently to provide Franchisor with a copy of any written notice of deficiency under the Lease sent to Franchisee and that grants to Franchisor, in its sole discretion and sole option, the right (but not the duty) to cure any deficiency under the Lease, should Franchisee fail to do so within fifteen days after the expiration of the period in which Franchisee may cure the default;

4.2.4

A provision that evidences the right of Franchisee to display the Proprietary Marks in accordance with the specifications required by the Manual, subject only to the provisions of applicable law;

4.2.5

A provision that the Premises shall be used only for the operation of the Restaurant; and

4.2.6

A provision that expressly states that any default under the Lease shall constitute a default under the Franchise Agreement, and a provision that Franchisor shall have the option to require an assignment of the Lease of the Premises from Franchisee to Franchisor, without the lessor of the Lease having any right to impose conditions on such an assignment or to obtain any payment in connection therewith in the event of any default or termination of Franchisee under the Franchise Agreement or Development Agreement or the termination of any such agreement.

Franchisee shall furnish Franchisor with a fully executed copy of the Lease within ten days after execution of the Lease.

4.3 Construction of Restaurant.

Prior to the commencement of any construction (including leasehold improvements) on the Premises, Franchisee, at its expense, shall comply, to Franchisor's satisfaction, with all of the following requirements:

4.3.1

Franchisee shall employ a qualified architect, or construction consultant, approved in advance by Franchisor, to review and adapt plans and specifications provided by Franchisor for construction of the Restaurant on the Premises;

4.3.2

Franchisee shall submit to Franchisor, for Franchisor's approval, detailed plans and specifications adapting Franchisor's then-current standard floor plans and design elements and specifications to Franchisee's location and to local and state laws, regulations and ordinances. When approved by Franchisor, such plans and specifications shall not thereafter be materially changed or modified without the prior written consent of Franchisor;

4.3.3

Franchisee shall employ a qualified general contractor, approved in advance by Franchisor, to supervise construction of the building on the Premises, including completion of all improvements; and

4.3.4

Franchisee shall obtain all permits and certifications required for lawful construction and operation of the Restaurant, including, without limitation, zoning, access, sign and fire requirements, and provide to Franchisor such evidence as Franchisor may reasonably request that all such permits and certifications have been obtained.

4.4 Use of Premises.

Franchisee shall use the Premises solely for the operation of the Restaurant; shall keep the Restaurant open and in normal operation for such minimum hours and days as Franchisor may from time to time specify in the Manual or as Franchisor may otherwise approve in writing; and shall refrain from using or permitting the use of the Premises for any other purpose or activity at any time without first obtaining the written consent of Franchisor.

4.5 Maintenance of Restaurant.

Franchisee shall maintain the Restaurant in a high degree of sanitation, repair and condition, and in connection therewith shall make such additions, alterations, repairs and replacements thereto (but no others without Franchisor's prior written consent) as may be required for that purpose.

4.6 Improvements and Modifications

. Franchisee agrees that from time to time Franchisor may change or modify the System and/or the Concept, including without limitation changes in the kinds or preparations of foods or beverages offered for sale, improvements or alterations in the decor of the Restaurant, or modifications in the operating procedures or requirements of the Restaurant. Franchisee shall accept such changes and modifications, as if they were part of this Agreement at the time of its execution, and shall promptly undertake and complete the changes and modifications; provided that Franchisee need not accept a Material Change as defined herein unless such change is or will be made throughout the System. A "Material Change" as defined herein is an improvement or modification that requires out-of-pocket expenditures by Franchisee in excess of $5,000. Franchisee shall not change, modify or alter in any way the System or the Concept.

4.7 Remodeling of Restaurant.

In order to assure the continued success of the Restaurant, Franchisee shall, any time from time to time after five years from the date of this Agreement as reasonably required by Franchisor (taking into consideration the cost and then-remaining term of this Agreement), modernize the Premises, equipment, signs, interior and exterior decor items, fixtures, furnishings, supplies and other products and materials required for the operation of the Restaurant to Franchisor's then-current design, decor, specifications and standards of the Concept; provided that, at the time Franchisor requires Franchisee to so modernize the Premise at least 25% of Franchisor-owned and operated restaurants meet such standards and specifications. Franchisee's obligations under this section are in addition to, and shall not relieve Franchisee from, any of its other obligations under this Agreement, including those contained in the Manual.

4.8 Operation of Restaurant.

Franchisee shall operate the Restaurant in strict conformity with such uniform methods, standards and specifications as Franchisor may from time to time prescribe in the Manual to insure that the highest degree of quality, timeliness and service is uniformly maintained. Franchisee agrees:

4.8.1

To maintain in sufficient supply and use at all times, only such food, beverages, furnishings, supplies, menus, fixtures and equipment as conform with Franchisor's standards and specifications, and to refrain from deviating therefrom by using nonconforming items without Franchisor's prior written consent;

4.8.2

To sell or offer for sale only such food, beverages and other products as have been expressly approved for sale in writing by Franchisor; to sell or offer for sale all approved food, beverages and other products; and to discontinue selling and offering for sale any food, beverages and other products as Franchisor may, in its discretion, disapprove in writing at any time. With respect to the offer and sale by Franchisee of all food, beverages and other products, Franchisee shall have sole discretion as to the prices to be charged to its customers and as to product brands conforming to Franchisor's standards and specifications. Franchisee shall honor any gift certificates issued pursuant to a System-wide gift certificate program;

4.8.3

To insure that the approved food products sold by Franchisee hereunder shall be of the highest quality, and the method of preparing and serving and the nature, quality, ingredients and composition of the food products sold hereunder shall comply with the instructions and recipes provided by Franchisor or contained in the Manual, and with the further written requirements of Franchisor as Franchisee may be advised from time to time. All recipes and requirements shall remain the property of Franchisor and shall be returned to it by Franchisee upon the expiration, termination or assignment by Franchisee of this Agreement; provided, Franchisee may, from time to time, request Franchisor to amend its instructions, recipes and requirements, which requests, upon a demonstration of good cause and a determination that such amendment would not conflict with, or cause damage or injury to, the Concept or the System, shall be approved by Franchisor;

4.8.4

To permit Franchisor or its agents, at any reasonable time, to remove from Franchisee's inventory, or from the Restaurant, at Franchisor's option, samples of items without payment therefor, in amounts reasonably necessary for testing by Franchisor or an independent laboratory to determine whether said samples meet Franchisor's then current standards and specifications. In addition to any other remedies it may have under this Agreement, Franchisor may require Franchisee to bear the cost of such testing if the supplier of the items has not previously been approved by Franchisor or if the sample fails to conform to Franchisor's specifications;

4.8.5

To purchase and install, at Franchisee's expense, all fixtures, furnishings, signs and equipment as Franchisor may reasonably direct from time to time in the Manual or otherwise in writing; and to refrain from installing or permitting to be installed on or about the Premises, without Franchisor's prior written consent, any equipment or other improvements not previously approved as meeting Franchisor's standards and specifications; provided, the purchase and installation of any such fixtures, furnishings, signs and equipment shall be subject to, and in compliance with, the terms of all local laws and the Lease, if any, for the Premises;

4.8.6

To maintain all equipment in a condition that meets operational standards specified in the Manual and, as equipment becomes obsolete or inoperable, to replace such equipment with the types and kinds of equipment as are then approved for use in the System. Franchisee shall also purchase and install new equipment within such reasonable times as are specified by Franchisor in the event Franchisor determines that Franchisee needs additional or substitute equipment to operate under the Concept;

4.8.7

To establish and utilize a point-of-sale system, including without limitation the acceptance of credit cards, that is compatible with a system specified by Eateries, as may change from time to time, and in accordance with the procedures of Franchisor and as contained in the Manual, as amended from time to time;

4.8.8

The Restaurant shall at all times be under the direct, on-premises supervision of Franchisee, a Principal Shareholder or a trained and competent employee acting as full-time manager. Within six months from the Effective Date, Franchisee shall notify Franchisor in writing of the person(s) selected to be manager(s) of the Restaurant. Thereafter, Franchisee shall keep Franchisor informed at all times of the identity of any employee(s) acting as manager(s) of the Restaurant. Franchisee and the Principal Shareholders agree that they will at all times faithfully, honestly and diligently perform their obligations hereunder and that they will not engage in any business or other activities that will conflict with their obligations hereunder; and

4.8.9

To employ the minimum number of employees, and to implement a training program for such employees, as may be prescribed by Franchisor, and to comply with all applicable federal, state and local laws, rules and regulations with respect to such employees.

4.9 Purchase of Ingredients, Supplies, and Materials.

Franchisee agrees that:

4.9.1

Franchisee shall purchase all food supplies and ingredients used in the composition of all menu items and other approved auxiliary products from approved suppliers which are in conformity with Franchisor's standards, as the same may be modified from time to time. Franchisor shall notify Franchisee of approved suppliers in its market area. If Franchisee desires to purchase food supplies, ingredients or auxiliary products from other than approved suppliers, Franchisee shall submit a written request for the same to Franchisor. If Franchisor determines that such proposed supplier or auxiliary products meet the quality standards of Franchisor, then Franchisor shall so notify Franchisee, and in such event Franchisee may then purchase food supplies and ingredients from such approved supplier, or purchase such auxiliary products. In the event Franchisor does not disapprove such request within forty-five days after receipt, such request shall be deemed to have been approved. Upon request, Franchisor shall furnish Franchisee with a list of any contracts entered into by Franchisor with national or regional suppliers used in the restaurant operations;

4.9.2

Franchisee agrees to comply with and honor any and all rebate and/or purchasing programs that Franchisor establishes for the System. Franchisor shall use commercially reasonable efforts to negotiate with suppliers for the lowest possible price for food and beverages for all franchisees in the System. In conjunction with such efforts, if Franchisor agrees to a rebate program with a supplier, all such rebates will be payable to Franchisor who shall distribute to Franchisee its pro-rata share of its rebates, less a 15% handling charge.

4.9.3

The parties hereto agree that Franchisor's method of cooking and preparing its food is a highly confidential trade secret and that because of the importance of quality and uniformity of product, it is to the mutual benefit of both parties hereto that Franchisor closely control the method of cooking and preparing such food;

4.9.4

Franchisee may purchase from Franchisor or its subsidiaries, upon such terms as Franchisor shall determine, such items and supplies as Franchisor offers for sale to its Franchisees;

4.9.5

Franchisee shall require all of its employees to dress in conformity with the styles that have been approved by Franchisor;

4.9.6

Franchisee shall make all payments to third parties, when due for obligations resulting from or incurred in the operation, or by virtue of the existence of the Restaurant, whether for services, goods, supplies, rent or otherwise; and

4.9.7

Franchisor, in its sole discretion, shall have the right to make, on behalf of Franchisee, any payment specified in this Agreement or the Lease of the Premises, or due and owed by Franchisee to any third party and which Franchisee shall have failed to pay when due, whether directly or through Franchisee. Franchisor shall bill Franchisee for any amount so paid by Franchisor, together with a delinquency charge of 18% per annum, provided that the rate of interest shall not in any event exceed the maximum rate permitted by law. Imposition of any such delinquency charge shall not constitute a waiver of the right of Franchisor to treat said failure of payment by Franchisee as a default under this Agreement or any other agreement, or to seek other available legal remedies.

4.10 Right to Set-Off.

In the event that any of the obligations owing under this Agreement shall be due and payable, yet remain unpaid for thirty days or more, Franchisor is hereby authorized by Franchisee at any time and from time to time, without prior notice, any such notice being expressly waived, to set off and appropriate and apply any funds held or owing by Franchisor (in any capacity) to or for the credit or the account of Franchisee against and on account of obligations and liabilities of Franchisee under this Agreement and claims of every nature and description of Franchisor against Franchisee, whether arising under this Agreement or otherwise, regardless of whether Franchisor has made demand for payment, and although such obligations, liabilities or claims are contingent or unmatured. Franchisor agrees to notify Franchisee of any such set-off and the application made by Franchisor, provided that the failure to give notice shall not affect the validity of the set-off and application. The right of set-off provided by this section is in addition to other rights and remedies that Franchisor may have.

4.11 Right to Enter.

Franchisee shall grant Franchisor and its agents the right to enter upon the Premises at any reasonable time for the purpose of conducting inspections; cooperate with Franchisor's representatives in such inspections by rendering such assistance as they may reasonably request; and, upon notice from Franchisor or its agents, and without limiting Franchisor's other rights under this Agreement, take such steps as may be necessary immediately to correct the deficiencies detected during any such inspection, including, without limitation, immediately desisting from the further use of any food, beverages, equipment, advertising materials, products or supplies that do not conform with Franchisor's then-current specifications, standards or requirements.

4.12 Accounting and Records.

4.12.1 Maintenance of Records.

Franchisee shall maintain and preserve, during the term of this Agreement, full, complete, and accurate books, records and accounts in accordance with the standard accounting system prescribed by Franchisor in the Manual or otherwise in writing. Franchisee shall retain during the term of this Agreement and for three years thereafter all books and records related to the Restaurant, including without limitation, sales checks, purchase orders, invoices, payroll records, customer lists, check stubs, sales and all other tax records and returns, cash receipts and disbursement journals, and general ledgers. [CHECKING WITH TAX ATTORNEY ON THIS ONE.]

4.12.2 Financial Reports.

In the form and manner as may be required by the Manual, Franchisee shall submit financial reports to Franchisor as required by this Section 4.12. Franchisee shall complete and submit to Franchisor weekly reports of the Gross Receipts for the Restaurant on or before 11:00 a.m. central time on the Monday following the calendar week to which the report relates. Franchisee shall also supply to Franchisor on or before the tenth day of each month an activity report for the last preceding month for the Restaurant, including without limitation, a report of the Restaurant's Gross Receipts for such month. Additionally, Franchisee shall, at its expense, submit to Franchisor the following financial statements for the Restaurant: (i) within thirty days of the end of each calendar quarter during the term of this Agreement, a profit and loss statement for the preceding quarter and a balance sheet as of the last day of the preceding quarter and (ii) no later than seventy-five days after the Franchisee's fiscal period during the term of this Agreement, a profit and loss statement for the prior fiscal period and a balance sheet as of the last day of such fiscal period, prepared on an accrual basis including all adjustments necessary for fair presentation of the financial statements. All such financial statements shall be prepared in accordance with generally accepted accounting principles and shall be certified to be true and correct by Franchisee. Franchisor reserves the right to require annual financial statements reviewed or audited by an independent certified public accountant chosen by Franchisee and acceptable to Franchisor; such review or audit shall be at the expense of Franchisee. Franchisor also reserves the right to require that all financial statements be prepared in accordance with specimen forms provided to Franchisee by Franchisor.

4.12.3 Other Reports.

Franchisee shall submit to Franchisor such other periodic reports, forms and records as specified, and in the manner and at the time as specified in the Manual or otherwise in writing.

4.12.4 Recordation.

Franchisee shall record all sales on point of sale systems approved by Franchisor or on such other types of point of sale systems as may be designated by Franchisor in the Manual or otherwise in writing. Franchisee agrees that Franchisor shall have the right to require Franchisee to utilize point-of-sale systems that are fully compatible with any program or system which Franchisor, in its discretion, may employ. Franchisor shall have full access to all of Franchisee's data, system and related information by means of direct access, whether in person or by telephone/modem.

4.12.5 Examinations.

Franchisor or its designated agents shall have the right at all reasonable times to examine and copy, at its expense, the books, records and tax returns of Franchisee. Franchisor shall also have the right, at any time, to have an independent audit made of the books of Franchisee at Franchisor's expense. If an inspection should reveal that any payments to Franchisor have been understated in any report to Franchisor, then Franchisee shall immediately pay to Franchisor the amount understated upon demand, in addition to interest from the date such amount was due until paid, at 18% per annum, provided that the rate of interest shall not exceed the maximum rate permitted by law. If an inspection discloses an understatement in any report of 2% or more, Franchisee shall, in addition, reimburse Franchisor for any and all costs and expenses connected with the inspection (including, without limitation, reasonable accounting and attorneys' fees). The foregoing remedies shall be in addition to any other remedies Franchisor may have.

4.13 Liquor License.

The grant of the rights which are the subject of this Agreement is expressly conditioned upon the ability of Franchisee to obtain and maintain any and all required state and/or local licenses permitting the sale of liquor by the drink on the Premises, and Franchisee agrees to use its best efforts to obtain such licenses. In the event Franchisee fails, after a good faith effort, to obtain any and all such required liquor licenses prior to or simultaneous with the opening of the Restaurant, then, at the option of Franchisor, this Agreement may be terminated immediately by Franchisor upon written notice to Franchisee, in which event, Franchisor shall refund to Franchisee, without interest, the Initial Fee, less (i) any application fees and/or franchise fee deposit allocated to the Initial Fee and (ii) any expenses incurred and damages sustained by Franchisor in connection with its performance hereunder prior to the date of such termination. After obtaining the necessary state and/or local liquor licenses, Franchisee shall thereafter comply with all applicable laws and regulations relating to the sale of liquor on the Premises. If, during any twelve-month period during the term of this Agreement, Franchisee is prohibited for any reason from selling liquor on the Premises for more than thirty days because of a violation or violations of state or local liquor laws, then, at the option of Franchisor, this Agreement may be terminated immediately by Franchisor upon written notice to Franchisee.

4.14 No Waiver.

Franchisee and the Principal Shareholders acknowledge that nothing contained herein constitutes Franchisor's agreement to accept any payments after same are due or a commitment by Franchisor to extend credit to or otherwise finance Franchisee's operation of the Restaurant. Further, Franchisee and the Principal Shareholders acknowledge that Franchisee's or the Principal Shareholders' failure to pay all amounts when due shall constitute grounds for termination of this Agreement, as herein provided.

ARTICLE V
PROPRIETARY MARKS

5.1 Representations of Franchisor.

Franchisor represents with respect to the Proprietary Marks that:

5.1.1

Franchisor has the full and exclusive right to the use of the Proprietary Marks, within the Protected Territory for restaurant and bar services and will take all reasonable steps to preserve and protect its ownership and validity in and to the Proprietary Marks in the Protected Territory;

5.1.2

Franchisor will use and permit Franchisee and other franchisees of Franchisor to use the Proprietary Marks only in accordance with the Concept in order to protect the goodwill associated with and symbolized by the Proprietary Marks; and

5.1.3

In the event that Franchisee is precluded from operating the Restaurant within the Protected Territory because Franchisor determines that a third person has acquired rights under the law of any state in such mark, which so precludes Franchisee, Franchisor agrees to assist Franchisee, at Franchisee's request, in locating an alternative site for the Restaurant. In the event that an alternative site cannot be located within ninety days of Franchisee's request, Franchisor shall repay the Initial Fee to Franchisee. Franchisee and the Principal Shareholders agree that the remedies set forth in this subsection and in Subsection 5.2.5 below, shall constitute their sole remedies against Franchisor in such event.

5.2 Agreement of Franchisee.

With respect to Franchisee's use of the Proprietary Marks pursuant to this Agreement, Franchisee agrees that:

5.2.1

Franchisee shall use only the Proprietary Marks designated by Franchisor and only in the manner authorized and permitted by Franchisor. Franchisee shall use the Proprietary Marks only in connection with the operation of the Restaurant;

5.2.2

During the term of this Agreement, Franchisee shall identify itself as the owner of the Restaurant in conjunction with any use of the Proprietary Marks, including, but not limited to, on invoices, order forms, receipts and contracts, as well as at such conspicuous locations on the Premises as Franchisor shall designate in writing. Any identification which specifies Franchisee's name shall be followed by the term "A Franchisee of Garfield's Restaurant & Pub" or such other identification as shall be approved by Franchisor, if used in connection with the Restaurant;

5.2.3

Franchisee's right to use the Proprietary Marks is limited to such uses as are authorized under this Agreement, and any unauthorized use thereof shall constitute an infringement of Franchisor's rights in the Proprietary Marks or otherwise;

5.2.4

Franchisee shall not use the Proprietary Marks to incur any obligation or indebtedness on behalf of Franchisor;

5.2.5

In the event that litigation involving the Proprietary Marks is instituted or threatened against Franchisee, Franchisee shall promptly notify Franchisor and shall cooperate fully in defending or settling such litigation. Franchisee agrees that Franchisor, upon notification to Franchisee, may elect to assume control over, and responsibility for, any litigation instituted against Franchisee involving the Proprietary Marks. In the event of any such litigation, Franchisor shall bear all costs of such litigation and should Franchisee be found liable for damages or penalties in connection with any such litigation, Franchisor shall indemnify and hold Franchisee harmless from such damages or penalties to the extent such actions or omissions for which Franchisee was held liable were conducted or performed in good faith and not in a manner negligently or recklessly giving rise to such liability. Furthermore, Franchisee shall execute any documents deemed necessary by Franchisor or its counsel to obtain protection for the Proprietary Marks or to maintain their continued validity and enforceability. Should Franchisee be forced to remove, replace or alter any signs, menus, advertising, paper goods or other items by reason of litigation in connection with the Proprietary Marks, Franchisor agrees to reimburse Franchisee for the reasonable costs of such removal, replacement or alteration;

5.2.6

Franchisee shall require all advertising and promotional materials, signs, decorations, paper goods (including forms, business cards, labels, boxes, envelopes and stationery), and other items designated by Franchisor to bear the Proprietary Marks in the form, color, location and manner required by Franchisor;

5.2.7

No item of merchandise, equipment, supplies, furnishings or utensils bearing the Proprietary Marks shall be used or sold in, upon, or on behalf of the Restaurant unless the same shall have been first submitted to and approved in writing by Franchisor as meeting Franchisor's existing standards of quality and utility;

5.2.8

Any Proprietary Marks subsequently provided to Franchisee for use within the Concept or the System shall enjoy the same protection as the Proprietary Marks herein used;

5.2.9

Franchisor is party to an agreement with United Feature Syndicate, Inc. ("UFS"), the trademark owner of the GARFIELD THE CAT cartoon strip characters. This agreement delineates the respective rights of Franchisor and UFS in the name GARFIELD. Under such agreement, Franchisor has agreed that neither Franchisor nor its franchisees will make any use of the GARFIELD THE CAT character or other characters from that comic strip in connection with the restaurant and/or bar services rendered by Franchisor and its franchisees. Franchisee and the Principal Shareholders acknowledge their understanding that such prior agreement between Franchisor and UFS is binding upon Franchisee and the Principal Shareholders, and Franchisee and the Principal Shareholders agree to comply with the restrictions contained in such agreement; particularly the restriction prohibiting usage by franchisees of Franchisor of the GARFIELD THE CAT character or any other characters from that comic strip in connection with any franchised restaurant of Franchisor; and

5.2.10

Franchisee shall not use any of the Proprietary Marks as part of an electronic mail address, or on any sites on the Internet or World Wide Web and shall not use or register any of the Proprietary Marks as a domain name on the Internet.

5.3 Acknowledgments of Franchisee.

Franchisee expressly understands and acknowledges that:

5.3.1

Franchisor has the exclusive right and interest in and to the Proprietary Marks and the goodwill associated with and symbolized by the Proprietary Marks, and the Proprietary Marks will serve to identify the Concept and those restaurants within the System;

5.3.2

Franchisee shall not directly or indirectly contest or conflict with the validity of Franchisor's ownership of the Proprietary Marks. Franchisee's use of the Proprietary Marks pursuant to this Agreement does not give Franchisee any ownership interest or other interest in or to the Proprietary Marks, except the franchise granted herein;

5.3.3

Any and all goodwill arising from Franchisee's use of the Proprietary Marks in the Restaurant under the Concept shall inure solely and exclusively to Franchisor's benefit, and upon expiration or termination of this Agreement and the franchise herein granted, no monetary amount shall be assigned as attributable to any goodwill associated with Franchisee's use of the Concept or the Proprietary Marks;

5.3.4

The right and license of the Proprietary Marks granted hereunder to Franchisee is nonexclusive (with the exception of Franchisee's rights in the Protected Territory), and Franchisor thus has and retains the rights among others:

(i) To grant additional franchises for Proprietary Marks, and to use the Proprietary Marks in connection with selling food and other products;

(ii) To develop and establish other systems for the same Proprietary Marks or similar proprietary marks, and grant licenses or franchises thereto without providing any rights therein to Franchisee; and

5.3.5

Franchisor reserves the right to substitute different Proprietary Marks for use in identifying the Concept, the System and the business operating thereunder, if Franchisor can no longer use, license or franchise the use of the Proprietary Marks.

ARTICLE VI
CONFIDENTIAL OPERATIONS

6.1 Compliance with Manual Standards.

In order to protect the reputation and goodwill of Franchisor and to maintain uniform standards of operation, Franchisee shall conduct its business in accordance with the Manual. Franchisee will receive on loan from Franchisor one copy of the Manual for the Restaurant. Franchisee shall return to Franchisor the Manual and any other manuals created or approved for use in the operation of the Restaurant, as well as any unauthorized copies of the foregoing materials, upon termination of this Agreement.

6.2 Confidentiality of Manual.

Franchisee shall at all times treat the Manual, any other manuals created or approved for use in the operation of the Restaurant, and the information contained therein, as confidential, and shall use all reasonable efforts to maintain such information as secret and confidential. Franchisee shall not at any time copy, duplicate, record, or otherwise reproduce the foregoing materials, in whole or in part, nor otherwise make the same available to any unauthorized person.

6.3 Property of Franchisor.

The Manual shall at all times remain the sole property of Franchisor. Franchisor may from time to time revise the contents of the Manual, and Franchisee and the Principal Shareholders expressly agree to comply with each new or changed standard.

6.4 Maintenance of Manual at Restaurants.

Franchisee shall, at all times, maintain the copy of the Manual at the Restaurant and insure that the Manual is kept current and up-to-date, and in the event of any dispute as to the contents of the Manual, the terms of the master copy of the Manual maintained by Franchisor at Franchisor's home office shall be controlling.

ARTICLE VII
CONFIDENTIAL INFORMATION

7.1 Proprietary Information.

Franchisee and the Principal Shareholders acknowledge that, over the term of this Agreement, they are to receive proprietary information which Franchisor has developed over time at great expense, including, but not limited to, information regarding the System, the Concept, methods of site selection, marketing and public relations methods, product analysis and selection, recipes for preparing, cooking and serving food and beverages, and service methods and skills relating to the development and operation of Restaurants. They further acknowledge that this information, which includes, but is not necessarily limited to, that contained in the Manual, is not generally known in the industry and is beyond their own present skills and experience, and that to develop it themselves would be expensive, time consuming and difficult. Franchisee and the Principal Shareholders further acknowledge that Franchisor's information provides a competitive advantage and will be valuable to them in the development of their business, and that gaining access to it is therefore a primary reason why they are entering into this Agreement. Accordingly, Franchisee and the Principal Shareholders agree that Franchisor's information, as described above, which may or may not be "trade secrets" under prevailing judicial interpretations or statutes, is private and valuable, and constitutes trade secrets belonging to Franchisor; and in consideration of Franchisor's confidential disclosure to them of these trade secrets, Franchisee and the Principal Shareholders agree as follows (subject to the provisions of the Development Agreement and any other franchise agreement between Franchisor, Franchisee, and the Principal Shareholders):

7.1.1

During the term of this Agreement, neither Franchisee nor any Principal Shareholder, for so long as such Principal Shareholder owns an interest in Franchisee, may, without the prior written consent of Franchisor, directly or indirectly engage in, or acquire any financial or beneficial interest (including any interest in corporations, partnerships, limited liability companies, trusts, unincorporated associations or joint ventures) in, advise, help, guarantee loans or make loans to, any restaurant business whose menu or method of operation is similar, in the reasonable opinion of Franchisor, to that employed by restaurant units within the System which is either (i) located in the "Territory" as defined in the Development Agreement, (ii) located in the Designated Market Area (as defined and established by Nielsen Media Research Company in its 1998-1999 map, a copy of which will be maintained by the Franchisor at the address set forth in Section 17.4) of any restaurant developed pursuant to the Development Agreement, (iii) located within a five-mile radius of any restaurant unit (whether owned by Franchisor or operated by a franchisee of Franchisor) within the System, or (iv) determined by Franchisor, exercising reasonable good faith judgment, to be a direct competitor of the System;

7.1.2

Neither Franchisee, for two years following the termination of this Agreement, nor any Principal Shareholder, for two years following the termination of all of his interest in Franchisee or the termination of this Agreement, whichever occurs first, may directly or indirectly engage in, or acquire any financial or beneficial interest (including any interest in corporations, partnerships, limited liability companies, trusts, unincorporated associations or joint ventures) in, advise, help, guarantee loans or make loans to, any restaurant business whose menu or method of operation is similar, in the reasonable opinion of Franchisor, to that employed by restaurant units within the System which is located either (i) in the "Territory" as defined in the Development Agreement, or if there is no Development Agreement, then in the Protected Territory (ii) in the Designated Market Area (as defined and established by Nielsen Media Research Company in its 1998-1999 map, a copy of which will be maintained by the Franchisor at the address set forth in Section 17.4) of any restaurant developed pursuant to the Development Agreement, (iii) within a five-mile radius of any restaurant unit (whether owned by Franchisor or operated by a franchisee of Franchisor) within the System, or (iv) within any area for which an active, currently binding development agreement has been granted by Franchisor to another franchisee as of the date of the termination; and

7.1.3

Neither Franchisee nor any Principal Shareholder shall at any time (i) appropriate or use the Concept, or any portion thereof, in any restaurant business which is not within the System, (ii) disclose or reveal any portion of the Concept or the System to any person, other than to Franchisee's employees at the Restaurant as an incident of their training, (iii) acquire any right to use the Proprietary Marks, except in connection with the operation of the Restaurant, or (iv) communicate, divulge or use for the benefit of any other person or entity any confidential information, knowledge or know-how concerning the methods of development or operation of a restaurant utilizing the Concept and the System, which may be communicated by Franchisor in connection with the Restaurant.

7.2 Injunctive Relief.

Franchisee and Principal Shareholders agree that the provisions of this Article VII are and have been a primary inducement to Franchisor to enter into this Agreement, and that, in the event of breach thereof, Franchisor would be irreparably injured and would be without adequate remedy at law. Therefore, in the event of a breach, or a threatened or attempted breach, of any of such provisions, Franchisor shall be entitled, in addition to any other remedies which it may have hereunder or in law or in equity (including without limitation the right to terminate this Agreement), to a preliminary and/or permanent injunction and a decree for specific performance of the terms hereof without the necessity of showing actual or threatened damage, and without being required to furnish a bond or other security.

7.3 Investments in Publicly Traded Companies.

The restrictions contained in Subsections 7.1.1 and 7.1.2 above shall not apply to ownership of less than 2% of the shares of a company whose shares are listed and traded on a national securities exchange, if such shares are owned for investment only and are not owned as an officer, director, employee, or consultant of such publicly traded company.

7.4 Reforming Provisions.

If any court or other tribunal having jurisdiction to determine the validity or enforceability of this Article VII determines that it would be invalid or unenforceable as written, then the provisions hereof shall be deemed to be modified or limited to such extent or in such manner as necessary for such provisions to be valid and enforceable to the greatest extent possible.

7.5 Confidentiality Agreements.

Franchisee shall require its general manager and each of its managers to execute a confidentiality agreement in the form attached hereto as Appendix A. Franchisee shall be responsible for compliance of its employees with the agreements identified in this Article VII. Furthermore, at the request of Franchisor, Franchisee shall provide Franchisor with executed confidentiality agreements from all executive officers, directors and holders of a beneficial interest of 10% or more in Franchisee. With respect to each person who becomes associated with Franchisee in one of the capacities enumerated above subsequent to execution of this Agreement, Franchisee, at the request of Franchisor, shall require and obtain executed confidentiality agreements from such persons and promptly provide Franchisor with copies of such agreements. In no event shall any person enumerated be granted access to any confidential aspect of the Concept, the System, the Manual or the Restaurant prior to execution of a confidentiality agreement.

ARTICLE VIII
USE OF NAME; ADVERTISING

8.1 Advertising Under Trade Name.

During the term of this Agreement, Franchisee agrees to advertise under the trade name "Garfield's Restaurant & Pub" or similar variations thereof, and to diligently promote and make every reasonable effort to steadily increase the business of the Restaurant by proper use of advertising media.

8.2 National Advertising and Marketing Program.

Franchisee shall monthly remit 0.5% of the monthly Gross Receipts for the Restaurant to the Garfield's National Advertising and Marketing Program (the "Program"), due and payable with the Continuing Royalty Fee. "Gross Receipts" shall be as defined in Subsection 2.1.2 of this Agreement. The Program will be maintained and administered as follows:

8.2.1

Franchisor shall direct all advertising and marketing programs with sole discretion over the materials and media used in such programs and the placement and allocation thereof. Franchisor may delegate such authority in writing to one or more of its franchisees, and may terminate the delegation at any time in its sole discretion. Franchisee agrees and acknowledges that the Program is intended to maximize general public recognition and acceptance of the Proprietary Marks for the benefit of those employing the Concept within the advertising coverage area and that Franchisor and its delegate(s) undertake no obligation in administering the Program to make expenditures for Franchisee which are equivalent or proportionate to its remittance, or to ensure that any particular franchisee benefits directly or pro rata from the placement of advertising;

8.2.2

Franchisee agrees that the funds may be used to meet any and all costs of maintaining, administering, directing and implementing advertising (including, without limitation, the cost of preparing and conducting television, radio, magazine and newspaper advertising campaigns, promotional and merchandising programs and other public relations and marketing research activities; employing advertising agencies, which may be affiliated with Franchisor, to assist therein). All sums paid by Franchisee to the Program shall be maintained in a separate account from the other funds of Franchisor and shall not be used to defray any of Franchisor's general operating expenses, except for administrative costs and overhead, as Franchisor may incur in activities reasonably related to the administration or direction of the Program and advertising programs;

8.2.3

It is anticipated that most contributions to the Program shall be incurred for advertising, market research and promotional purposes during Franchisor's fiscal year within which contributions are made. If, however, excess amounts remain in the Program at the end of such fiscal year, all expenditures in the following fiscal year(s) shall be made first out of any current interest or other earnings of the Program, next out of any accumulated earnings, and finally from principal. Franchisor may issue to its franchisees credit memo while excess amounts are outstanding;

8.2.4

Although Franchisor intends to maintain the Program continually, Franchisor maintains the right to terminate the Program. The Program shall not be terminated, however, until all monies in the Program have been expended for advertising and promotional purposes or refunded to its franchisees without interest; and

8.2.5

An accounting of the operation of the Program shall be prepared annually and shall be made available to Franchisee upon request. Franchisor reserves the right, at its option, to require that such annual accounting include an audit of the operation of the Program prepared by an independent certified public accountant selected by Franchisor and prepared at the expense of the Program.

8.3 Local Advertising.

Franchisee shall incur and pay monthly for electronic and print media (or such other promotional campaign materials as Franchisor may approve) an amount equal to 3.0% of its Gross Receipts for the preceding month (or such shorter period as it has been open). Upon written request of Franchisee, Franchisor may, at its discretion, reduce this requirement for a particular calendar year. Franchisee acknowledges that it has primary responsibility for the promotion, advertising and marketing of the Restaurant, and that, unless otherwise agreed in writing, such responsibility is neither altered nor diminished by required contributions to a fund or funds established by Franchisor for the promotion of the Concept and the System.

8.4 Cooperative Advertising Campaigns.

From time to time, Franchisor may designate a local, regional or national advertising coverage area in which at least two or more franchised restaurants of Franchisor or Franchisor-owned restaurants are located for purposes of developing short-term, cooperative advertising campaigns. Franchisee agrees to participate in and contribute its share to such campaigns. The cost of the campaign shall be allocated among such franchised restaurants of Franchisor and Franchisor-owned restaurants within the advertising coverage area. Each franchisee's share shall be in proportion to the ratio of its sales to aggregate sales of all such franchised restaurants of Franchisor and Franchisor-owned restaurants within the advertising coverage area during the quarter preceding the commencement of the campaign; provided, that the contributions shall not exceed 3.5% of Franchisee's Gross Receipts for such quarter. Contributions to such campaigns will be credited towards the advertising expenditures required under Section 8.2, and then towards the advertising fee required under Section 8.3. At the time a campaign is submitted, Franchisor shall submit a list to Franchisee of all franchised restaurants and Franchisor-owned restaurants within the advertising coverage area.

8.5 Opening Promotions.

Franchisee shall submit to Franchisor, for Franchisor's approval, an advertising campaign plan relating to the promotion of the opening of the Restaurant which is sufficient to meet the needs of the relevant market. The Manual contains a Press Release kit to assist Franchisee in this regard. Franchisee shall conduct the approved advertising campaign and make all expenditures for advertising to promote the opening of the Restaurant no later than sixty days after the Restaurant opens for business. Franchisor will reimburse 50% of Franchisee's out-of-pocket opening advertising expenditures up to a maximum of Two Thousand Five Hundred Dollars ($2,500), if Franchisee meets the following criteria:

(i) Franchisee's opening advertising expenditures are made within sixty days after the opening of the Restaurant;

(ii) Franchisee submits to Franchisor within one hundred twenty days after the opening of the Restaurant documentation for the opening advertising expenditures, such as paid invoices from suppliers of goods or services evidencing expenditure on the opening advertising promotion; and

(iii) Franchisee's opening advertising expenditures are made pursuant to the approved advertising campaign plan and in accordance with the "Grand Opening Reimbursement Program Policy Guidelines" set forth in the Manual.

8.6 Prior Approval of Franchisor.

No coupon, promotional campaign, design, advertisement, sign, or form of publicity, including the form, color, number, location and size of the same, shall be used by Franchisee unless such is first submitted to, and approved by, Franchisor in writing. Without limiting the generality of the foregoing sentence, such advertising materials shall include without limitation the use of the Internet and Websites established and maintained by the Franchisee. Upon written notice by Franchisor, Franchisee agrees to remove, shut down or modify, at the discretion of Franchisor, any advertising materials (including without limitation Websites) found to be objectionable by Franchisor. If said materials are not removed, shut down or modified within five days after such notice, Franchisor, or its authorized agents, may at any time enter the Restaurant or upon the Premises or elsewhere, remove such objectionable signs or advertising media, or take any other action required to remove such advertising, and may keep or destroy such signs or other media without paying therefor, and without incurring liability to Franchisee for trespass or other tort.

ARTICLE IX
INSURANCE

9.1 Procurement of Policies.

Franchisee shall procure, at Franchisee's expense, prior to the commencement of any operations under this Agreement, and maintain in full force and effect during the term of this Agreement, an insurance policy or policies protecting Franchisee and Franchisor, and their respective officers, directors, partners and employees, against any loss, liability, personal injury, death, property damage, or expense whatsoever arising or occurring upon or in connection with the Restaurant and the Premises, as well as such other insurance applicable to such other special risks as Franchisor may reasonably require for its own and Franchisee's protection.

9.2 Coverage and Amounts.

Such policy or policies shall be written by an insurance company satisfactory to Franchisor in accordance with standards and specifications set forth in the Manual or otherwise in writing, and shall include, at a minimum, the following :

KIND OF INSURANCE	MINIMUM LIMITS OF LIABILITY
Worker's Compensation	Statutory
Employer's Liability	$500,000 bodily injury by accident $500,000 bodily injury by disease
Employment Practices Liability	$500,000 each occurrence
Comprehensive General Public Liability, including Product Liability, Injury and Liquor Liability	$1,000,000 each person $1,000,000 each occurrence $2,000,000 aggregate
Fire, Vandalism and Extended Coverage	Full replacement value
Umbrella Liability Insurance	$10,000,000
Other Required by Law	Lawful Limits

Except for worker's compensation, Franchisor shall be named as an additional insured in all such policies. Franchisor may require such additional coverage (in either kinds or amounts) as it determines to be reasonable under the circumstances.

9.3 Additional Coverage.

Franchisee must also carry business interruption insurance written by an insurance company satisfactory to Franchisor. In connection with any construction, renovation, refurbishing, or remodeling of the Restaurant, Franchisee shall require the general contractor to maintain, with a reputable insurer, comprehensive general liability insurance (with builder's risk, product liability, completed operations and independent contractors' coverage) in at least the amount of Five Hundred Thousand Dollars ($500,000), with Franchisor named as an additional insured, as well as worker's compensation, employer's liability insurance and such other insurance as may be required by law. Except for worker's compensation, Franchisor shall be named as an additional insured in all such policies.

9.4 Obligation Not Limited.

Franchisee's obligation to obtain and maintain the foregoing policy or policies in the amounts specified shall not be limited in any way by reason of any insurance which may be maintained by Franchisor, nor shall Franchisee's performance of that obligation relieve it of liability under the indemnity provisions set forth in Section 16.2 of this Agreement.

9.5 Evidence of Insurance.

Upon obtaining the insurance required by this Agreement, and on each policy renewal date thereafter, Franchisee shall promptly submit evidence of satisfactory insurance and proof of payment therefor to Franchisor together with, upon request, copies of all policies and policy amendments. The evidence of insurance shall include a statement by the insurer that the policy or policies will not be canceled or materially altered without at least thirty days' prior written notice to Franchisor.

9.6 Authority of Franchisor to Procure Insurance.

Should Franchisee, for any reason, fail to procure or maintain the insurance required by this Agreement, as revised from time to time by the Manual or otherwise in writing by Franchisor for all franchisees, Franchisor shall have the right and authority (without, however, any obligation to do so) immediately to procure such insurance and to charge same to Franchisee, which charges, together with a reasonable fee for Franchisor's expenses in so acting, shall be payable by Franchisee immediately upon notice.

ARTICLE X
TRANSFERS OF INTEREST

10.1 Transfer by Franchisor.

Franchisor shall have the right to transfer or assign all or any part of its rights or obligations herein to any person or legal entity.

10.2 Transfer by Franchisee.

10.2.1 Conditions on Transfer.

Franchisee understands and acknowledges that the rights and duties set forth in this Agreement are personal to Franchisee and the Principal Shareholders, and Franchisor has granted this franchise in reliance on Franchisee's and Principal Shareholders' business skills, financial capacity, and personal character. Accordingly, Franchisee shall neither sell, assign, transfer, pledge, mortgage or otherwise encumber this franchise, the Restaurant, the Premises, or this Agreement or any right or interest herein, nor permit any such assignment, transfer or encumbrance to occur by operation of law without the prior written consent of Franchisor. Franchisee may not, without the prior written consent of Franchisor, fractionalize any of the rights of Franchisee granted pursuant to this Agreement. Franchisee shall not permit any person or persons (if acting as a group) owning an equity interest in excess of 20% in Franchisee to sell, assign, transfer, fractionalize, pledge, mortgage or otherwise encumber his or their equity interest in Franchisee, nor permit any such assignment, transfer or encumbrance to occur by operation of law without the prior written consent of Franchisor. For purposes of this Agreement, a merger, consolidation, conveyance of the properties and assets of Franchisee substantially as an entirety to any person, any sale (or series of sales) of Franchisee's equity that reduces the equity ownership of the prior, remaining shareholders by 20% or more during the term of this Agreement, or any reorganization of Franchisee shall be deemed to be a transfer subject to the provisions of this Section 10.2. The assignment of any interest, other than as provided in this Agreement, any purported assignment or transfer, by operation of law or otherwise, not having the written consent of Franchisor required by this Section 10.2 shall be null and void and shall constitute a material breach of this Agreement, for which Franchisor may then terminate without opportunity to cure pursuant to Section 11.2 of this Agreement.

10.2.2 Consent.

Franchisor shall not unreasonably withhold its consent to a transfer of any interest in this Agreement, the Restaurant, the Premises or Franchisee; provided, however, that if a transfer, alone or together with other previous, simultaneous, or proposed transfers, would have the effect of transferring Franchisee's interest in this Agreement, the Restaurant, the Premises or a controlling interest in Franchisee, Franchisor may, in its sole discretion, require as a condition of its approval the satisfaction of any or all of the following conditions set forth below. As the term is used in this Section 10.2, "Transferor" shall include Franchisee and all Principal Shareholders in case of a transfer by Franchisee, and in case of a transfer by one or more Principal Shareholders, the term shall include such Principal Shareholders and Franchisee:

(i) All of Transferor's accrued monetary obligations to Franchisor and all other outstanding obligations related to the Restaurant or any other franchised restaurant granted to Franchisee from Franchisor shall have been satisfied;

(ii) Transferor is not in default of any provisions of this Agreement, any amendment hereof or successor hereto, or the Development Agreement, if applicable, or any other agreement between Transferor and Franchisor or its subsidiaries and affiliates;

(iii) Transferor shall have executed a general release in a form satisfactory to Franchisor, of any and all claims against Franchisor and its officers, directors, shareholders and employees, in their corporate and individual capacities, including, without limitation, claims arising under all applicable laws, rules and ordinances;

(iv) The transferee shall enter into a written agreement, in a form satisfactory to Franchisor, assuming and agreeing to discharge all of Transferor's obligations under this Agreement, or if the obligation of Franchisee were guaranteed by the transferor, the transferee shall guarantee the performance of all such obligations in writing in a form satisfactory to Franchisor;

(v) The transferee shall demonstrate to Franchisor's satisfaction that transferee and its owners and employees meet Franchisor's managerial and business standards; possess a good moral character, business reputation and credit rating; have the aptitude and ability to conduct the Restaurant (as may be evidenced by prior related business experience or otherwise); and have adequate financial resources and capital to operate the Restaurant;

(vi) At Franchisor's option, Franchisee or the transferee, as the case may be, shall execute (and/or, upon Franchisor's request, shall cause all interested parties to execute), for a term ending on the expiration date of this Agreement, the standard form franchise agreement then being offered to new System franchisees and other ancillary agreements as Franchisor may require for a franchised restaurant of Franchisor, which agreements shall supersede this Agreement in all respects and the terms of which agreements may differ from the terms of this Agreement;

(vii) At its own expense, the transferee shall upgrade, or cause to be upgraded, the Restaurant to conform to the then-current standards and specifications of System restaurants, and shall complete the upgrading and other requirements within the time specified by Franchisor;

(viii) Transferor shall remain liable for all obligations of the Restaurant prior to the effective date of transfer and shall execute any and all instruments reasonably requested by Franchisor to evidence such liability; and

(ix) Transferee shall have paid to Franchisor a transfer fee equal to 20% of the then current initial fee charged to franchisees of Franchisor for the training, supervision, administrative costs, overhead and other Franchisor expenses incurred in connection with the transfer.

10.2.3 No Security Interest.

In addition to the requirement to obtain Franchisor's consent as required by Subsection 10.2.1 above, Franchisee shall not grant a mortgage, security interest or other encumbrance in the Restaurant, the Premises or in any of its assets unless the mortgagee, secured party or similar party agrees that in the event of any default by Franchisee under any documents related to the encumbrance, Franchisor shall have the right and option to purchase the rights of the mortgagee, secured party or similar party upon payment of all sums then due to such party.

10.3 Right of First Refusal.

10.3.1 Right.

If Franchisee or the Principal Shareholders (collectively the "Seller"), desires to accept any bona fide offer from a third party to purchase an interest in this Agreement, the Restaurant, the Premises or an equity interest in Franchisee, as the case may be, the Seller shall notify Franchisor in writing of each such offer by a full and complete statement of the terms and conditions including the considerations therefor. Franchisor shall have the right and option, exercisable within thirty days after receipt of such written notification, to send written notice to the Seller that Franchisor or its assignee intends to purchase the Seller's interest on the same terms and conditions offered by the third party. Seller shall promptly notify Franchisor of any modification of the aforementioned terms and conditions, which modification shall constitute a modification of Franchisor's option subject to the provision of Subsection 10.3.2 and shall commence a new thirty day option period. In the event that Franchisor or its assignee elects to purchase the Seller's interest, the closing on such purchase must occur within sixty days from the date of notice to the Seller of the election to purchase by Franchisor. Failure of Franchisor to exercise the option afforded by this subsection shall not constitute a waiver of any other provision of this Agreement, including all of the requirements of this Article X, with respect to a proposed transfer.

10.3.2 Consideration.

In the event the consideration, terms and/or conditions offered by the Seller are such that Franchisor may not reasonably be required to furnish the same consideration, terms and/or conditions, then Franchisor or its assignee may purchase such interest proposed to be sold for the reasonable equivalent in cash. If the parties hereto cannot agree within a reasonable time on the reasonable equivalent in cash of the consideration, terms and/or conditions offered by the Seller, Franchisor and Franchisee shall select an independent appraiser whose determination of a reasonable equivalent in cash shall be binding. If Franchisor and Franchisee cannot agree on an independent appraiser in a reasonable time, an independent appraiser shall be designated by Franchisor and Franchisee, and the two independent appraisers so designated shall select a third independent appraiser. The determination of a reasonable equivalent in cash by a majority of the appraisers so chosen shall be binding. Franchisor and Franchisee shall bear the costs of the appraisals on an equal basis.

10.4 Transfer Upon Death or Mental Incompetency.

Upon the death or mental incompetency of Franchisee or a Principal Shareholder, the personal representative of such Principal Shareholder shall transfer his or her interest to a third party approved by Franchisor within six months after such death or mental incompetency. Such transfers, including, without limitation, transfers by devise or inheritance, shall be subject to the same conditions as any inter vivos transfer as set forth in this Article X. However, in the case of transfer by devise or inheritance, if the heirs or beneficiaries of any such person are unable to meet the conditions in this Article X, the personal representative of the deceased shall have six months to dispose of the deceased's interest in this Agreement, the Restaurant, the Premises or Franchisee, which disposition shall be subject to all the terms and conditions for transfers contained in this Article X. If the interest is not disposed of within such time, Franchisor may terminate this Agreement.

10.5 Non-Waiver of Claims.

Franchisor's consent to a transfer of any interest in the franchise granted herein, this Agreement, the Restaurant, the Premises, or any equity interest in Franchisee shall not constitute a waiver of any claims it may have against the transferring party, nor shall it be deemed a waiver of Franchisor's right to demand exact compliance with any of the terms of this Agreement or the agreement(s) executed by any transferee.

10.6 Permitted Assignments.

Notwithstanding anything to the contrary contained herein, Franchisee or any Principal Shareholders may assign its or their interest in this Agreement the Restaurant, the Premises, or in Franchisee to other existing shareholders of Franchisee or to such person's spouse, child or parent; provided, however, that in each case, any such assignments, individually or in the aggregate, will not result in a change in "control" of Franchisee. For purpose of this section, "control" shall mean possession of the power, directly or indirectly, through stock ownership or otherwise, to direct the management and policies of Franchisee. A Principal Shareholder may also transfer any interests in Franchisee to a revocable living trust created by such Principal Shareholder, to a family limited partnership (or similar family entity), so long as the Principal Shareholder or his or her spouse is the general partner of such partnership, and/or to an irrevocable trust solely for the benefit of the Principal Shareholder's lineal descendants. Any such permitted assignments shall be subject to all terms and conditions of this Agreement, including, without limitation, restrictions on subsequent assignment or sale of ownership.

ARTICLE XI
DEFAULT AND TERMINATION

11.1 Termination by Franchisor Without Notice.

Franchisee and the Principal Shareholders shall be deemed to be in default under this Agreement, and all rights granted herein shall automatically terminate without notice to Franchisee, if Franchisee or any Principal Shareholder become insolvent or generally fails to pay, or admits in writing its inability to pay, debts as they become due, or Franchisee or any Principal Shareholder applies for, consents to, or acquiesces in the appointment of, a trustee, receiver or other custodian for Franchisee or any Principal Shareholder or any of its or their property or makes a general assignment for the benefit of creditors; or, in the absence of such application, consent or acquiescence, a trustee, receiver or other custodian is appointed for Franchisee or any Principal Shareholder, or for a substantial part of its or their property and is not discharged within thirty days; or any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding, is commenced in respect of Franchisee or any Principal Shareholders and, if such case or proceeding is not commenced by Franchisee or any Principal Shareholder, it is consented to or acquiesced in by Franchisee or any Principal Shareholder or remains for thirty days undismissed; or Franchisee or any Principal Shareholder take any action to authorize, or in furtherance of, any of the foregoing; or Franchisee's Gross Receipts for any rolling period of twelve calendar months are less than $600,000.00.

11.2 Termination by Franchisor with Notice.

Franchisee and the Principal Shareholders shall be deemed to be in default, and Franchisor may, at its option, terminate this Agreement and all rights granted hereunder without affording Franchisee or the Principal Shareholders any opportunity to cure the default, effective immediately upon receipt of notice by Franchisee, upon the occurrence of any of the following events:

11.2.1

If Franchisee at any time ceases to operate or otherwise abandons the Restaurant; provided, however, that if Franchisee ceases to operate the Restaurant due to a casualty loss for a period of less than six consecutive months, Franchisee will not be presumed to have abandoned the Restaurant;

11.2.2

If Franchisee, any Principal Shareholder, or any officer, director, or manager of Franchisee is convicted of or pleads nolo contendere to a felony, a crime involving moral turpitude, or any other crime or offense that is reasonably likely, in the sole opinion of Franchisor, to adversely affect the System, the Concept, the Proprietary Marks, the goodwill associated therewith, or Franchisor's interest therein;

11.2.3

If Franchisee or any Principal Shareholder purports to transfer any rights or obligations under this Agreement, the Restaurant, the Premises or any interest in Franchisee to any third party without Franchisor's prior written consent, contrary to the terms of Article X of this Agreement;

11.2.4

If Franchisee or a Principal Shareholder fails to comply in any respect with the non-competition agreements in Article XIII hereof as to any person or if Franchisee discloses or divulges, contrary to Articles VI or VII hereof, the contents of the Manual or other trade secret or confidential information provided to Franchisee or to the Principal Shareholder by Franchisor;

11.2.5

If an approved transfer is not effected within a reasonable time following a death or mental incompetency as required by Section 10.4 hereof;

11.2.6

If Franchisor discovers that Franchisee or any Principal Shareholder made a material misrepresentation or omitted any material fact in the information that was furnished to Franchisor in connection with this Agreement;

11.2.7

If any part of this Agreement relating to the payment of fees to Franchisor, or the preservation of any of Franchisor's Proprietary Marks or other trade names, service marks, trademarks, trade secrets or secret formulae licensed or disclosed hereunder is declared invalid or unenforceable for any reason; or

11.2.8

If Franchisee or a Principal Shareholder, after curing a default under Section 11.3, engages in the same default whether or not such default is cured after notice, or Franchisee or Principal Shareholder is repeatedly in default under Section 11.3 hereof for failure substantially to comply with any of the requirements imposed by this Agreement, whether or not cured after notice.

11.3 Termination by Franchisor with Notice and Opportunity to Cure.

Except as provided in Sections 11.1 and 11.2 of this Agreement, Franchisee and/or a Principal Shareholder shall be deemed to be in default hereunder for any failure to comply with any of the requirements imposed by this Agreement, as it may from time to time reasonably be supplemented by the Manual, or to carry out the terms of this Agreement in good faith. After receipt from Franchisor of a written notice of termination, Franchisee and the Principal Shareholders shall have either ten days (for defaults Franchisor considers to relate to the financial obligations of the Franchisee or the operation of the Restaurant) or sixty days (for all other situations) within which to remedy any default under this Agreement and to provide evidence thereof to Franchisor. Franchisor shall specify in the notice the applicable cure period. If any such default is not cured within the cure period, or such longer period as applicable law may require or as agreed to in writing by the Franchisor, this Agreement shall terminate without further notice to Franchisee or the Principal Shareholder(s) effective immediately upon the expiration of the applicable cure period.

11.4 Termination by Franchisee.

In the event of any material breach by Franchisor of this Agreement, Franchisor shall have sixty days after its receipt from Franchisee of a written notice of intent to terminate within which to remedy such default and to provide evidence thereof to Franchisee. If such default is not cured within that time, or such longer period as applicable law may require, this Agreement shall terminate without further notice to Franchisor effective immediately upon the expiration of the sixty-day period or such longer period as applicable law may require.

Furthermore, this Agreement may be terminated by Franchisee, upon thirty days' notice to Franchisor, in the event any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution or insolvency proceeding, is commenced in respect of Franchisor; provided, should such case or proceeding not be commenced by Franchisor, this Agreement may be terminated only upon thirty days' notice to Franchisor following any consent or acquiescence by Franchisor to the case or proceeding or upon thirty days' notice to Franchisor should Franchisor not consent or acquiesce thereto and the case or proceeding has not been dismissed sixty days from the commencement thereof.

ARTICLE XII
OBLIGATIONS UPON TERMINATION OR EXPIRATION

12.1 General Obligations.

Except in the event of a termination of this Agreement pursuant to Section 11.4, upon the termination or expiration of this Agreement all rights granted hereunder to Franchisee and the Principal Shareholders shall immediately terminate, and:

12.1.1

Franchisee and the Principal Shareholders shall immediately cease to operate the Restaurant and shall not thereafter, directly or indirectly, represent to the public or hold itself out as a present or former franchisee or Franchisor;

12.1.2

Upon demand by Franchisor, Franchisee and the Principal Shareholders shall assign to Franchisor all of their right, title and interest in any lease then in effect for the Restaurant or the Premises, and Franchisee and the Principal Shareholders shall furnish Franchisor with evidence satisfactory to Franchisor of compliance with this obligation within thirty days after termination or expiration of this Agreement;

12.1.3

Franchisee and the Principal Shareholders shall immediately and permanently cease to use, by advertising or in any other manner whatsoever, any confidential methods, procedures and techniques associated with the Concept and the System; the mark "Garfield's Restaurant & Pub"; and all other Proprietary Marks and distinctive slogans, signs, symbols, or devices associated with the Concept and the System. In particular, Franchisee and the Principal Shareholders shall cease to use, without limitation, all signs, equipment, advertising materials, stationery and any other articles which display the Proprietary Marks associated with the Concept and the System;

12.1.4

Franchisee and the Principal Shareholders shall take such action as may be necessary to cancel any assumed name or equivalent registration which contains the mark "Garfield's Restaurant & Pub," the Proprietary Marks or any other service mark or trademark of Franchisor, and, if applicable, Franchisee and the Principal Shareholders will change its corporate name so as to delete therefrom the words "Garfield's Restaurant & Pub," the Proprietary Marks or any other similar combination, and Franchisee and the Principal Shareholders shall furnish Franchisor with evidence satisfactory to Franchisor of compliance with this obligation within ten days after termination or expiration of this Agreement;

12.1.5

If Franchisor does not demand an assignment of the Lease under Subsection 12.1.2, Franchisee and the Principal Shareholders shall make such modifications or alterations to the Premises operated hereunder (including, without limitation, the changing of the telephone number) immediately upon termination or expiration of this Agreement as may be necessary to prevent any association between Franchisor or the System and any business subsequently operated by Franchisee, the Principal Shareholders or others, and shall make such specific additional changes thereto as Franchisor may reasonably request for that purpose including, without limitation, the removal of all distinctive physical and structural features identifying the Concept. In the event Franchisee or the Principal Shareholders fail or refuse to comply with the requirements of this section, Franchisor shall have the right to enter upon the Premises where the Restaurant was operated, without being guilty of trespass or any other tort, for the purpose of making or causing to be made such changes as may be required at the expense of Franchisee and the Principal Shareholders, which expense Franchisee and the Principal Shareholders agree to pay upon demand;

12.1.6

Franchisee and the Principal Shareholders agree, in the event it or they continue to operate or subsequently begins to operate any other business, not to use any reproduction, counterfeit, copy, or colorable imitation of the Proprietary Marks either in connection with such other business or the promotion thereof, which is likely to cause confusion, mistake, or deception, or which is likely to dilute Franchisor's rights in and to the Proprietary Marks, and further agree not to utilize any designation of origin or description or representation which falsely suggests or represents an association or connection with Franchisor so as to constitute unfair competition;

12.1.7

Franchisee and the Principal Shareholders shall promptly pay all sums owing to Franchisor and its subsidiaries and affiliates. In the event of termination for any default of Franchisee or the Principal Shareholders, such sums shall include all damages, costs and expenses, including reasonable attorneys' fees, incurred by Franchisor as a result of the default, which obligation shall give rise to and remain, until paid in full, a lien in favor of Franchisor against any and all of the personal property, equipment, inventory and fixtures owned by Franchisee and the Principal Shareholders and on the Premises operated hereunder at the time of default;

12.1.8

Franchisee and the Principal Shareholders shall pay Franchisor all damages, costs and expenses, including reasonable attorneys' fees, incurred by Franchisor subsequent to the termination or expiration or other relief for the enforcement of any provisions of this Section 12.1;

12.1.9

Franchisee and the Principal Shareholders shall immediately turn over to Franchisor all material, including, without limitation, all manuals (including the Manual) and all records, instructions, correspondence, brochures, agreements and any and all other materials and all copies thereof in Franchisee's possession relating to the operation of the Restaurant (all of which are acknowledged to be Franchisor's property), and shall retain no copy or record of any of the foregoing, excepting only Franchisee's copy of this Agreement and of any correspondence between the parties hereto, and any other documents which Franchisee or the Principal Shareholders reasonably need for proper business purposes or compliance with any provision of law;

12.1.10

Franchisee shall not remove any property from the Restaurant Premises for a period of thirty days after the termination of this Agreement. At the option of Franchisor, within ten days after the date of termination or expiration of this Agreement, Franchisee and Franchisor shall arrange for an inventory to be made, at Franchisee's cost of all the personal property, fixtures, equipment and inventory of Franchisee related to the operation of the Restaurant. As to items that could be considered exclusively for use in a Garfield's Restaurant & Pub Restaurant, Franchisor shall have the option to purchase from Franchisee any or all of such items at fair market value. The determination of items deemed to be exclusively used in a Garfield's Restaurant & Pub Restaurant shall be reasonably made by Franchisor. If the parties hereto cannot agree on fair market value within a reasonable time, the parties hereto shall select an appraiser whose determination of fair market value shall be binding. If the parties cannot agree on an appraiser within a reasonable time, one independent appraiser shall be designated by Franchisor and another by Franchisee, and the two independent appraisers so designated shall select a third independent appraiser. The determination of fair market value of a majority of appraisers so chosen shall be binding. Franchisee and Franchisor shall bear the costs of the appraisal on an equal basis. If Franchisor elects to exercise the option to purchase herein provided, it shall have ten days after determination of fair market value to notify Franchisee of its exercise of the option to purchase and shall have the right to set

off all amounts due from Franchisee and the Principal Shareholders under this Agreement against any payment therefor.

As to the remaining items of personal property, fixtures, equipment and inventory, Franchisee and the Principal Shareholders hereby grant Franchisor a right of first refusal to purchase such items on the same terms and conditions that a bona fide third party has made an offer to Franchisee or the Principal Shareholders for the purchase of any or all of such items. Franchisee shall promptly notify Franchisor of the receipt of an offer to purchase any or all of such items, and if Franchisor elects to exercise its right of first refusal provided herein, it shall have ten days to notify Franchisee of its election to exercise the right. Furthermore, Franchisor shall have the right to set off all amounts due from Franchisee and the Principal Shareholders under this Agreement against any payment therefor; and

12.1.11

Franchisee and the Principal Shareholders shall comply with the agreements contained in Section 13.4 of this Agreement.

12.2 Obligations Upon Termination by Franchisee.

Upon termination of this Agreement pursuant to Section 11.4, all rights granted hereunder to Franchisee and the Principal Shareholders shall immediately terminate, and Franchisee and the Principal Shareholders shall be subject to all the terms of Section 12.1.

12.3 Refund of Initial Fee Upon Termination.

In the event of termination by reason of Franchisee's failure after a good faith effort to obtain the necessary state or local liquor licenses as required in Section 4.13, Franchisor shall refund to Franchisee, without interest, the Initial Fee referred to in Subsection 2.1.1, less any expenses incurred and damages sustained by Franchisor in connection with its performance hereunder prior to the date of such termination. Franchisor shall also repay the Initial Fee under the circumstances described in Subsection 5.1.3 hereof. In the event of termination for any other reason, Franchisor shall have no obligation to refund any amount previously paid by Franchisee or the Principal Shareholders, and Franchisee and the Principal Shareholders shall be obligated to promptly pay all sums which are then due Franchisor.

ARTICLE XIII
AGREEMENTS

13.1 Best Efforts.

Franchisee agrees that, during the term of this Agreement, except as otherwise approved in writing by Franchisor, Franchisee, the Principal Shareholders or Franchisee's general manager, shall devote full time, energy and best efforts to the management and operation of the Restaurant.

13.2 Franchisee and Principal Shareholders Agreement Not to Compete.

Franchisee and the Principal Shareholders agree that, during the term of this Agreement, except as otherwise approved in writing by Franchisor, Franchisee and the Principal Shareholder shall not, either directly or indirectly, for itself or themselves, or through, on behalf of, or in conjunction with, any person, persons, partnership, or corporation, divert or attempt to divert any business or customer of any Garfield's Restaurant & Pub Restaurant or any other franchise or company-owned business of Franchisor to any competitor, by direct or indirect inducement or otherwise, or do or perform, directly or indirectly, any other act injurious or prejudicial to the goodwill associated with Franchisor's Proprietary Marks, the Concept and the System.

13.3 Franchisor Agreement Not to Compete.

Franchisor agrees that during the term of this Agreement, except as otherwise approved in writing by Franchisee, Franchisor shall not intentionally or maliciously:

13.3.1

Divert or attempt to divert any material business from the Restaurant to any competitor; provided, this Subsection 13.3.1 shall not apply to any present or future Garfield's Restaurant & Pub Restaurants, or any other franchise or company-owned business of Franchisor;

13.3.2

Employ or seek to employ any person who is at that time employed by Franchisee or otherwise induce such person to leave his or her employment; or

13.3.3

Nothing in this Agreement shall prohibit Franchisor's ownership or operation of any business which sells food and beverages.

13.4 Interference with Employment Relations.

During the term of this Agreement, neither Franchisor, Franchisee, nor the Principal Shareholders shall employ or seek to employ in a managerial position (i.e., in a position at a pay grade at or above that of an assistant restaurant manager or kitchen manager), directly or indirectly, any person who is at the time or was at any time during the prior six months employed by the other party or any of its subsidiaries or affiliates, or by any franchisee in the System. This section shall not be violated if, at the time Franchisor or Franchisee/Principal Shareholders employs or seeks to employ such person, such former employer has given its written consent. Notwithstanding any other provision of this Agreement, the parties hereto acknowledge that if this section is violated, such former employer shall be entitled to liquidated damages equal to three times the annual salary of the employee involved, plus reimbursement of all costs and attorneys' fees incurred. In addition to the rights granted to the parties hereto, the parties hereto acknowledge and agree that any franchisee from which an employee was hired by a party to this Agreement in violation of the terms of this section shall be deemed to be a third-party beneficiary of this provision and may sue and recover against the offending party the liquidated damages herein set forth; provided, however, the failure by Franchisee to enforce this section shall not be deemed to be a violation of this section.

13.5 Reduction of Scope of Agreement.

Franchisee and the Principal Shareholders understand and acknowledge that Franchisor shall have the right, in its sole discretion, to reduce the scope of any agreement set forth in Sections 13.2 and 7.1 of this Agreement, or any portion thereof, without consent, effective immediately upon receipt by Franchisee of written notice thereof, and Franchisee and the Principal Shareholders agree that they shall comply with any agreement as so modified, which shall be fully enforceable notwithstanding the provisions of Article XVI hereof.

13.6 Reforming Provisions.

If any court or other tribunal having jurisdiction to determine the validity or enforceability of this Article XIII determines that it would be invalid or unenforceable as written, then the provisions hereof shall be deemed to be modified or limited to such extent or in such manner as necessary for such provisions to be valid and enforceable to the greatest extent possible.

ARTICLE XIV
TAXES, PERMITS AND INDEBTEDNESS

14.1 Prompt Payment of Taxes.

Franchisee or the Principal Shareholders shall promptly pay when due all taxes levied or assessed, including, without limitation, VAT (value added taxes), unemployment and sales taxes and all accounts and other indebtedness of every kind incurred by Franchisee in the conduct of the Restaurant. Franchisee or the Principal Shareholders shall pay to Franchisor an amount equal to any sales tax, withholding of tax, gross receipts tax, or similar tax imposed on Franchisor with respect to any payments to Franchisor required under this Agreement.

14.2 Bona Fide Dispute.

In the event of any bona fide dispute as to liability for taxes assessed or other indebtedness, Franchisee or the Principal Shareholders may contest the validity or the amount of the tax or indebtedness in accordance with procedures of the taxing authority or applicable law; however, in no event shall Franchisee or the Principal Shareholders permit a tax sale or seizure by levy of execution or similar writ or warrant, or attachment by a creditor, to occur against the Premises, the Restaurant or any improvements thereon.

14.3 Compliance with Laws.

Franchisee and the Principal Shareholders shall comply with all federal, state and local laws, rules and regulations, and shall timely obtain any and all permits, certificates, or licenses necessary for the full and proper conduct of the Restaurant under this Agreement, including, without limitation, licenses to do business, fictitious name registration, sales tax permits, liquor licenses and fire clearances.

14.4 Notification of Legal Proceedings.

Franchisee or the Principal Shareholders shall notify Franchisor in writing within ten days of the commencement of any action, suit or proceeding, and of the issuance of any order, writ, injunction, award or decree of any court, agency or other governmental instrumentality, which may adversely affect the operation or financial condition of the Restaurant.

ARTICLE XV

FRANCHISEE ORGANIZATION, AUTHORITY,
AND FINANCIAL CONDITION

15.1 Entity Representations & Warranties.

Franchisee and each Principal Shareholder represent and warrant that: (a) Franchisee is a corporation duly incorporated, validly existing and in good standing under the laws of the state of its incorporation; (b) Franchisee is duly qualified and is authorized to do business and is in good standing as a foreign corporation in each jurisdiction in which its business activities or the nature of the properties owned by it requires such qualification; (c) the execution and delivery of this Agreement and the transactions contemplated hereby are within Franchisee's corporate power; (d) the execution and delivery of this Agreement has been duly authorized by Franchisee; (e) the articles of incorporation and by-laws of Franchisee delivered to Franchisor are true, complete and correct, and there have been no changes therein since the date thereof; (f) the certified copies of the minutes electing the officers of Franchisee and authorizing the execution and delivery of this Agreement are true, correct and complete, and there have been no changes therein since the date(s) thereof; (g) the specimen stock certificate delivered to Franchisor is a true specimen of Franchisee's stock certificate; (h) the balance sheet of Franchisee as of ____________ ___, _______ and the balance sheets of the Principal Shareholders as of _____________ ___, _______, ("Balance Sheets") heretofore delivered to Franchisor, are true, complete and correct, and fairly present the financial positions of Franchisee and each Principal Shareholder, respectively, as of the dates thereof; (i) the Balance Sheets have been prepared in accordance with generally accepted accounting principles; and (j) there have been no materially adverse changes in the condition, assets or liabilities of Franchisee or the Principal Shareholders since the date or dates thereof.

15.2 Covenants.

Franchisee and each Principal Shareholder covenant and agree that during the term of this Agreement: (a) Franchisee shall do or cause to be done all things necessary to preserve and keep in full force its corporate existence and shall be in good standing as a foreign corporation in each jurisdiction in which its business activities or the nature of the properties owned by it requires such qualification; (b) Franchisee shall have the corporate authority to carry out the terms of this Agreement; and (c) Franchisee shall print, in a conspicuous fashion on all certificates representing shares of its stock when issued, a legend referring to this Agreement and the restrictions on and obligations of Franchisee and the Principal Shareholders hereunder, including the restrictions in this Agreement on transfer of Franchisee's shares.

15.3 Financial Statements.

In addition to the financial information which Franchisee is required to provide to Franchisor under Subsection 4.12.2 and Section 15.1 hereof, Franchisee and the Principal Shareholders shall provide Franchisor with such other financial information as Franchisor may reasonably request from time to time, including, on an annual basis, copies of the then-most current financial statements of Franchisee and each Principal Shareholder, dated as of the end of the last preceding fiscal year of Franchisee or Principal Shareholder, said statements to be delivered to Franchisor no later than April 15 of each year, which financial statements shall be prepared in accordance with generally accepted accounting principles.

15.4 Ownership.

Franchisee shall maintain a current list of all owners of record and all beneficial owners of any class of equity security of Franchisee and shall furnish the list to Franchisor upon request. Schedule 15.4 attached to this Agreement and made a part hereof is a complete and correct listing of the directors, officers, managers and equity holders of Franchisee. Franchisee and each Principal Shareholder represent, warrant and covenant that all equity interests in Franchisee are owned as set forth on Schedule 15.4, that no such interest has been pledged or hypothecated (except in accordance with Article X, and that no change will be made in the ownership of any such interest other than as permitted by this Agreement, or otherwise consented to in writing by Franchisor. Franchisee and Principal Shareholders agree to furnish Franchisor with such evidence as Franchisor may request, from time to time, for the purpose of assuring Franchisor that the interests of Franchisee and Principal Shareholders remain as represented herein.

15.5 Guarantees.

Each Principal Shareholder, jointly and severally, hereby personally and unconditionally guarantees each of Franchisee's financial obligations to Franchisor (including, but not limited to, all obligations relating to the payment of fees by Franchisee to Franchisor). Each Principal Shareholder agrees that Franchisor may resort to such Principal Shareholder (or any of them) for payment of any such financial obligation, whether or not Franchisor shall have proceeded against Franchisee, any other Principal Shareholder or any other obligor primarily or secondarily obligated to Franchisor with respect to such financial obligation. Each Principal Shareholder hereby expressly waives presentment, demand, notice of dishonor, protest and all other notices whatsoever with respect to Franchisor's enforcement of this guaranty. In addition, each Principal Shareholder agrees that, if the performance or observance by Franchisee of any term or provision hereof is waived or the time of performance thereof extended by Franchisor, or payment of any such financial obligation is accelerated in accordance with any agreement between Franchisor and any party hereto liable in respect thereof or extended or renewed, in whole or in part, all as Franchisor may determine, whether or not notice to or consent by any Principal Shareholder or any other party liable in respect to such financial obligations is given or obtained, such actions shall not affect or alter the guaranty of each Principal Shareholder described in this section.

ARTICLE XVI
RELATIONSHIP AND INDEMNIFICATION

16.1 Relationship.

It is understood and agreed by the parties hereto that this Agreement does not create a fiduciary relationship between them, and that nothing in this Agreement is intended to constitute any party an agent, legal representative, subsidiary, joint venturer, partner, employee, or servant of the other for any purpose whatsoever. Franchisee and the Principal Shareholders are independent contractors and are not authorized to make any contract, agreement, warranty, or representation on behalf of Franchisor, or to incur any debt or obligation, express or implied, on behalf of Franchisor. Furthermore, except as expressly provided in Section 5.2.5, Franchisor shall in no event assume liability for, or be deemed liable hereunder as a result of, any such action, or by reason of any act or omission of Franchisee or the Principal Shareholders in the conduct of the Restaurant or any claim or judgment arising therefrom against Franchisor. During the term of this Agreement, Franchisee shall hold itself out to the public as operating the Restaurant pursuant to a franchise from Franchisor. Franchisee agrees to take such affirmative action as may be necessary to do so, including, without limitation, exhibiting a notice of that fact in a conspicuous place in the Restaurant, the content of which Franchisor reserves the right to specify.

16.2 Indemnification.

Franchisee and the Principal Shareholders shall indemnify and hold harmless Franchisor and its officers, directors, employees, agents, affiliates, successors and assigns from and against (a) any and all claims based upon, arising out of, or in any way related to the operation or condition of any part of the Restaurant or the Premises, the conduct of business thereat, the ownership or possession of real or personal property, and any negligent act, misfeasance or nonfeasance by Franchisee, the Principal Shareholders of any of their agents, contractors, servants, employees or licensees (including, without limitation, the performance by Franchisee or the Principal Shareholders of any act required by, or performed pursuant to, any provision of this Agreement), and (b) any and all fees (including reasonable attorneys' fees), costs and other expenses incurred by or on behalf of Franchisor in the investigation of or defense against any and all such claims.

ARTICLE XVII
GENERAL PROVISIONS

17.1 Request for Approval.

Whenever this Agreement requires the prior approval or consent of Franchisor, Franchisee or the Principal Shareholder shall make a timely written request to Franchisor therefor, and such approval or consent shall be obtained in writing.

17.2 No Liability Assumed.

Franchisor makes no warranties or guarantees upon which Franchisee or any Principal Shareholder may rely, and assumes no liability or obligation to Franchisee or any Principal Shareholder, by providing any waiver, approval, consent or suggestion to Franchisee or any Principal Shareholder in connection with this Agreement, or by reason of any neglect, delay, or denial of any request therefor.

17.3 No Waiver.

No delay, waiver, omission or forbearance on the part of Franchisor to exercise any right, option, duty, or power arising out of any breach or default by Franchisee or any Principal Shareholder, or by any other franchisee or developer of Franchisor, of any of the terms, provisions, or conditions hereof, shall constitute a waiver by Franchisor to enforce any such right, option, duty or power as against Franchisee or any Principal Shareholder, or as to any subsequent breach or default by Franchisee or any Principal Shareholder. Subsequent acceptance by Franchisor of any payments due to it hereunder shall not be deemed to be a waiver by Franchisor of any preceding breach by Franchisee or the Principal Shareholders of any terms, provisions or conditions of this Agreement.

17.4 Notices.

Any and all notices required or permitted under this Agreement shall be in writing and shall be deemed given when delivered in person, by overnight courier service, facsimile transmission or mailed by certified or registered mail, return receipt requested, to the respective parties hereto at the addresses set forth below, unless and until a different address has been designated by written notice to the others.

Franchisor: Eateries, Inc.

1220 S. Santa Fe

Edmond, Oklahoma 73003

Attention.: Larry Bader,

Vice President of Franchising

Facsimile: (405) 705-5001

Franchisee:

Facsimile: _____________________

Principal Shareholder: See Schedule 17.4

17.5 Entire Agreement.

This Agreement, the documents referred to herein, and the schedules, appendices, and/or exhibits or other attachments hereto, constitute the entire, full and complete agreement between Franchisor, Franchisee and the Principal Shareholders concerning the subject matter hereof, and supersede all prior agreements, no other representations having induced Franchisee to execute this Agreement. Except for changes or modifications of the System made from time to time by Franchisor, which shall be set forth in the Manual or in writing, no amendment, change, or variance from this Agreement shall be binding on the parties hereto unless mutually agreed to by the parties hereto and executed by their authorized officers or agents in writing .

17.6 Severability and Construction.

The parties hereto agree that:

17.6.1

Except as expressly provided to the contrary herein, each section, subsection, part, term and/or provision of this Agreement shall be considered severable; and if, for any reason, any section, subsection, part, term and/or provision herein is determined to be invalid and contrary to, or in conflict with, any existing or future law or regulation by a court or agency having valid jurisdiction, such shall not impair the operation of, or have any other effect upon, such other sections, parts, terms and/or provisions of this Agreement as may remain otherwise intelligible, and the latter shall continue to be given full force and effect and bind the parties hereto; and said invalid sections, subsections, parts, terms and/or provisions shall be deemed not to be a part of this Agreement;

17.6.2

Unless otherwise specified in this Agreement, nothing in this Agreement is intended, nor shall be deemed, to confer upon any person or legal entity other than Franchisor or Franchisee and such of their respective successors and assigns as may be contemplated by Article X hereof, any rights or remedies under or by reason of this Agreement;

17.6.3

Franchisee and Principal Shareholders expressly agree to be bound by any promise or covenant imposing the maximum duty permitted by law which is subsumed within the terms of any provision hereof, as though it were separately articulated in and made a part of this Agreement, that may result from striking from any of the provisions hereof any portion or portions which a court may hold to be unreasonable and unenforceable in a final decision to which Franchisor is a party, or from reducing the scope of any promise or covenant to the extent required to comply with such a court order;

17.6.4

All captions in this Agreement are intended solely for the convenience of the parties hereto, and none shall be deemed to affect the meaning or construction of any provision hereof;

17.6.5

All references herein to the masculine, neuter, or singular shall be construed to include the masculine, feminine, neuter, or plural, where applicable, and all acknowledgments, covenants, agreements and obligations herein made or undertaken by Franchisee shall be deemed jointly and severally undertaken by all the Principal Shareholders on behalf of Franchisee; and

17.6.6

This Agreement may be executed in several counterparts, and each copy so executed shall be deemed an original.

17.7 Remedies.

All rights and remedies of Franchisor shall be cumulative and not alternative, in addition to and not exclusive of any other rights or remedies which are provided for herein or which may be available at law or in equity in case of any breach, failure or default or threatened breach, failure or default of any term, provision or condition of this Agreement. Franchisor's rights and remedies shall be continuing and shall not be exhausted by any one or more uses thereof, and may be exercised at any time or from time to time as often as may be expedient; and any option or election to enforce any such right or remedy may be exercised or taken at any time and from time to time. The expiration or earlier termination of this Agreement shall not discharge or release Franchisee or any Principal Shareholder from any liability or obligation then accrued, or any liability or obligation continuing beyond, or arising out of, the expiration or earlier termination of this Agreement.

17.8 Force Majeure.

As used in this section, the term "Force Majeure" shall mean any act of God, strike, lock-out or other industrial disturbance, war (declared or undeclared), riot, epidemic, fire or other catastrophe, act or inaction of any government and any other similar cause not within the control of the party hereto affected thereby. If the performance of any obligation by any party hereto under this Agreement is prevented or delayed by reason of Force Majeure, which cannot be overcome by use of normal commercial measures, the parties hereto shall be relieved of their respective obligations to the extent such parties are respectively necessarily prevented or delayed in such performance during the period of such Force Majeure. The party whose performance is affected by an event of Force Majeure shall give prompt notice of such Force Majeure event to the other parties by facsimile, telephone or telegram (in each case to be confirmed in writing), setting forth the nature thereof and an estimate as to its duration, and shall be liable for failure to give such timely notice only to the extent of damage actually caused.

17.9 Applicable Law.

This Agreement takes effect upon its acceptance and execution by Franchisor in Oklahoma and shall be interpreted and construed under the laws thereof, which laws shall prevail in the event of any conflict of laws, except to the extent governed by the United States Trademark Act of 1946, as amended.

17.10 Final and Binding Arbitration.

Except as provided in Section 17.11, any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination, or invalidity of it, shall be settled by arbitration to be held in Oklahoma City, Oklahoma, in accordance with and through the AAA Commercial Arbitration Rules in effect as of the Effective Date, or such other rules to which the parties hereto may agree or the law may require. The arbitration shall be conducted by a single arbitrator selected by the American Arbitration Association. All proceedings of the arbitration, including arguments and briefs, shall be conducted in English. The arbitrator shall take evidence directly from witnesses and documents as presented by the parties; all witnesses shall be made available for cross examination. The arbitrator shall render a written award within three months of the request for arbitration, and such award shall be final and binding upon the parties hereto, non-appealable and without recourse. Judgment upon the award may be entered in any court of record of competent jurisdiction, or application may be made to such court for judicial confirmation of the award and an order of enforcement, as the law of such jurisdiction may require or allow. The prevailing party or parties (as determined by the arbitrator) shall be entitled to reimbursement from the other party(ies) of the costs of the prevailing party's own experts, evidence and legal counsel in any arbitration held under this provision and in any action filed for judicial confirmation of the award. The non-prevailing party(ies) shall also bear the expenses of arbitration.

17.11 Injunctive Relief; Venue.

Notwithstanding the provisions of Section 17.10, nothing herein contained shall bar Franchisor's right to obtain injunctive relief against threatened conduct that will cause it loss or damages, under the usual equity rules, including the applicable rules for obtaining restraining orders and preliminary injunctions. In that event, such action may be brought by Franchisor in the federal or state judicial district in which Franchisor's principal place of business is located or in any other court of competent jurisdiction.

Franchisor, Franchisee and the Principal Shareholders irrevocably consent to the arbitration and venue provisions of Sections 17.10 and 17.11 and each submits to the jurisdiction and venue in such arbitration and court(s) and waives any defenses thereto. Each party hereto agrees to service of process in any such proceeding by either personal delivery against receipt, telegram, telex, facsimile, or registered mail (with postage prepaid and return receipt requested) to the addresses set forth Section 17.4 and the attached Schedule 17.4, or any substitute addresses indicated by notice. A consent, notice or waiver transmitted by telegram, telex, or facsimile will be deemed to have been delivered two days after transmission and if mailed, seven days after mailing.

17.12 Legal Fees.

In the event that any party to this Agreement initiates any legal proceeding to construe or enforce any of the terms, conditions and/or provisions of this Agreement, including, but not limited to, its termination provisions, or to obtain damages or other relief to which any party may be entitled by virtue of this Agreement, the prevailing party or parties shall be paid its reasonable attorneys' fees and expenses by other party or parties.

17.13 Acknowledgments.

Franchisee and the Principal Shareholders acknowledge, and represent and warrant to Franchisor, that:

17.13.1

Franchisee and the Principal Shareholders have conducted an independent investigation into the ownership and operation of the Restaurant, and recognize that the business venture contemplated by this Agreement involves business risks and that its success will be largely dependent upon the ability of Franchisee and the Principal Shareholders as independent business operators and their active participation in the daily affairs of the Restaurant. Franchisor expressly disclaims the making of, and Franchisee and the Principal Shareholders acknowledge that they have not received, any warranty or guarantee, express or implied, as to the potential volume, profits, or success of the business venture contemplated by this Agreement;

17.13.2

Franchisee has received a copy of this complete Agreement, the attachments, schedules and/or exhibits hereto, and all agreements relating hereto, if any, and the Development Agreement and all agreements relating thereto, at least five business days prior to the date on which this Agreement was executed. Franchisor further acknowledges that it has received the disclosure document required by the Federal Trade Commission at the earliest of (1) the first personal meeting held for the purpose of discussing the sale or possible sale of a franchise; or (2) ten business days prior to the date on which this Agreement was executed; or (3) ten business days before the payment of any consideration in connection with the sale of the franchise contemplated hereunder;

17.13.3

Franchisee and the Principal Shareholders have read and understood this Agreement, the attachments, schedules, and/or exhibits hereto, and any other agreements related to this Agreement, including, without limitation, the Development Agreement and all agreements relating thereto, if any, and that Franchisor has accorded Franchisee and the Principal Shareholders ample time and opportunity to consult with advisors of their own choosing about the potential benefits and risks of entering into this Agreement; and

17.13.4

Franchisee and the Principal Shareholders understand that every detail of the business franchised hereunder is important to Franchisee, Franchisor, the Principal Shareholders and other franchisees in order to develop and maintain high and uniform operating standards for the System and the Concept, to increase the demand for the services and products sold by Franchisor and all franchisees of Franchisor, and to protect Franchisor's reputation and goodwill.

IN WITNESS WHEREOF, the parties hereto have duly executed, sealed and delivered this Agreement on the day and year first above written.

FRANCHISOR: EATERIES, INC.

By:

Laurence Bader

Vice President of Franchising

FRANCHISEE:

By:

PRINCIPAL SHAREHOLDER(S):

Name:

Name:

SCHEDULE A

[Street address for the Restaurant; for single franchise agreement]

SCHEDULE 15.4

to the Franchise Agreement between
Eateries, Inc. and

The directors, officers, managers and equity holders of Franchisee are:

Name of Director/Officer/Manager Title

Class and Number

of Shares or Other

Name of Equity-holder Units of Ownership

SCHEDULE 17.4

to the Franchise Agreement between

Eateries, Inc. and _________________

Name of Principal Shareholder Address and Telephone Number

APPENDIX A

CONFIDENTIALITY AGREEMENT

THIS AGREEMENT is made this ___ day of __________, _____, by and between _____________________________, a ______________ corporation ("Franchisee") and __________________, an individual employed by Franchisee ("Employee ").

WITNESSETH:

WHEREAS, EATERIES, INC. ("Franchisor") is the owner of all rights in and to a unique system for the development and operation of restaurants (the "System"), which includes proprietary rights in valuable trade names, service marks and trademarks, including the service mark Garfield's Restaurant & Pub and variations of such mark, designs and color schemes for restaurant premises, signs, equipment, procedures and formulae for preparing food and beverage products, specifications for certain food and beverage products, inventory methods, operating methods, financial control concepts, a training facility and teaching techniques; and

WHEREAS, Franchisee is the owner of the exclusive right to develop restaurants franchised by Franchisor which utilize the System ("Restaurants") for the period and in the territory described in the Development Agreement between Franchisor and Franchisee (the "Development Agreement"); and

WHEREAS, Franchisee has entered into a Franchise Agreement with Franchisor covering the franchised restaurant (the "Restaurant") at which Employee is employed; and

WHEREAS, Franchisee and Employee acknowledge that Franchisor' information as described above was developed over time at great expense, is not generally known in the industry and is beyond Franchisee's own present skills and experience, and that to develop it itself would be expensive, time-consuming and difficult, that it provides a competitive advantage and will be valuable to Franchisee in the development of its business, and that gaining access to it was therefore a primary reason why Franchisee entered into the Development Agreement; and

WHEREAS, in consideration of Franchisor's confidential disclosure to Franchisee of these trade secrets, Franchisee has agreed to be obligated by the terms of Franchise Agreement and/or the Development Agreement to execute, with each employee of Franchisee who will have supervisory authority over the development or operation of the Restaurant and/or other Restaurants in the Territory described in the Development Agreement, a written agreement protecting Franchisor' trade secrets and confidential information entrusted to Employee;

NOW, THEREFORE, in consideration of the mutual covenants and obligations contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, covenant and agree as follows:

(1) The parties hereto acknowledge and agree that Employee is or will be employed in a supervisory or managerial capacity and in such capacity will have access to information and materials which constitute trade secrets and confidential and proprietary information. The parties further acknowledge and agree that any actual or potential direct or indirect competitor of Franchisor, or of any of its Franchisees, shall not have access to such trade secrets and confidential information.

(2) The parties hereto acknowledge and agree that the System includes trade secrets and confidential information which Franchisor has revealed to Franchisee in confidence, and that protection of said trade secrets and confidential information and protection of Franchisor against unfair competition from others who enjoy or who have had access to said trade secrets and confidential information are essential for the maintenance of goodwill and special value of the System.

(3) Employee agrees that he or she shall not at any time (i) appropriate or use the trade secrets incorporated in the System, or any portion thereof, for use in any business which is not within the System; (ii) disclose or reveal any portion of the System to any person, other than to Franchisee's employees as an incident of their training; (iii) acquire any right to use, or to license or franchise the use of any name, mark or other intellectual property right which is or may be granted by any franchise agreement between Franchisor and Franchisee; or (iv) communicate, divulge or use for the benefit of any other person or entity any confidential information, knowledge or know-how concerning the methods of development or operation of the Restaurant or other Restaurants which may be communicated to Employee or of which Employee may be apprised by virtue of Employee's employment by Franchisee. Employee shall divulge such confidential information only to such of Franchisee's other employees as must have access to that information in order to operate the Restaurant or other Restaurants or to develop a prospective site for the Restaurant or other Restaurants. Any and information, knowledge and know-how, including, without limitation, drawings, materials, equipment, specifications, techniques and other data, which Franchisor designates as confidential, shall be deemed confidential for purposes of this Agreement.

(4) Employee further acknowledges and agrees that the Garfield's Operations Manual and any other materials or manuals provided or made available to Franchisee by Franchisor (collectively, the "Manuals") are loaned by Franchisor to Franchisee for limited purposes only, remain the property of Franchisor, and may not be reproduced, in whole or in part, without the written consent of Franchisor.

(5) Employee agrees to surrender to Franchisee or to Franchisor each and every copy of the Manuals and any other information or material in his/her possession or control upon request, upon termination of employment or upon completion of the use for which said Manuals or other information or material may have been furnished to Employee.

(6) The parties hereto agree that in the event of a breach of this Agreement, Franchisor would be irreparably injured and would be without an adequate remedy at law. Therefore, in the event of a breach or a threatened or attempted breach of any of the provisions hereof, Franchisor shall be entitled to enforce the provisions of this Agreement as a third-party beneficiary hereof and shall be entitled, in addition to any other remedies which it may have hereunder at law or in equity (including the right to terminate the Development Agreement), to a temporary and/or permanent injunction and a decree for specific performance of the terms hereof without the necessity of showing actual or threatened damage, and without being required to furnish a bond or other security.

(7) If any court or other tribunal having jurisdiction to determine the validity or enforceability of this Agreement determines that it would be invalid or unenforceable as written, the provisions hereof shall be deemed to be modified or limited to such extent or in such manner necessary for such provisions to be valid and enforceable to the greatest extent possible.

IN WITNESS WHEREOF, the undersigned have entered into this Agreement as of the date first above written.

FRANCHISEE EMPLOYEE

By: By:

Name: Name:

Title:

APPENDIX B
AUTHORIZATION AGREEMENT FOR PRE-ARRANGED PAYMENTS

COMPANY NAME

COMPANY I.D. NO.

I (WE) HEREBY AUTHORIZE EATERIES, INC., HEREINAFTER CALLED COMPANY, TO INITIATE DEBIT ENTRIES TO OUR CHECKING ACCOUNT INDICATED BELOW AND THE DEPOSITORY NAMED BELOW, HEREINAFTER CALLED DEPOSITORY, TO DEBIT THE SAME TO SUCH ACCOUNT.

DEPOSITORY NAME

BRANCH

CITY ______________________________STATE_________ZIP

TRANSIT/ABA NO.____________________ACCT. NO.

THIS AUTHORITY IS TO REMAIN IN FULL FORCE AND EFFECT UNTIL COMPANY AND DEPOSITORY HAS RECEIVED WRITTEN NOTIFICATION FROM ME (OR EITHER OF US) OF ITS TERMINATION IN SUCH TIME AND IN SUCH MANNER AS TO AFFORD COMPANY AND DEPOSITORY A REASONABLE OPPORTUNITY TO ACT ON IT.

NAME_______________________________________ ID#

DATE___________________ SIGNED

SIGNED

EX-10.21 7 ex1021.htm EXHIBIT 10.21

LEASE

This Lease is made and entered into this 1st day of August, 1999, by and between Eateries, Inc. "EATS" (together referred to as "Tenant"), and Great Places of Shawnee, L.L.C. "GPLLC"., an Oklahoma Limited Liability Company ("Landlord").

WITNESSETH

In consideration of the mutual covenants and agreements contained in this Lease and the due and faithful performance of each and all the terms, covenants and conditions contained herein, Landlord and Tenant agree as follows:

ARTICLE 1

Leased Premises

Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the building, the parking lot, driveways, and other improvements, more particularly described on attached Exhibit "A," (the "Premises") located at 4845 N. Kickapoo, Shawnee, Oklaohma.

ARTICLE 2

Term

(A) Initial Term: This Lease shall be effective on October 1, 1999, the "Rent Commencement Date," and the initial term of this Lease shall extend to the date fifteen years from the Rent commencement Date ("Initial Term"), unless sooner terminated or extended as herein provided.  The term  "Lease Year" as used herein shall be defined as twelve months beginning on the Rent Commencement Date. Each successive Lease Year shall be that twelve-month period following the end of the first Lease Year.

(B) Option to Extend: As part of the consideration  for the execution of this Lease by Tenant, and conditioned upon Tenant having performed all of its obligations hereunder, and provided Tenant is not at the time of exercise of any such option to extend in default hereunder, Landlord hereby grants to Tenant one option to extend the Initial Term for a period of five years, upon the same terms and conditions, with rent at the rate as paid in the last year of the initial fifteen year term at the then fair market value of similar space or $20 per square foot whichever is greater. If Tenant elects to exercise the option to extend this Lease, it shall notify Landlord of its intention in writing not less than six months before the expiration of the Initial Term. Except as otherwise specifically stated in this Lease, the term of this Lease shall include the Initial Term and any extension, renewal or holdover thereof.

ARTICLE 3

Use

(A) The Premises shall be used only for the purposes of a casual theme full service restaurant. In connection therewith, Tenant shall be in compliance at all times with all applicable statutes and ordinances.

(B) Tenant shall, during the term of this Lease, operate its business on the Premises with reasonable due diligence and efficiency in a first-class and professional manner; provided, however, that this provision shall not apply if the Premises should be closed and the business of Tenant therein be temporarily shut down on account of strikes, lockouts, acts of God, repairing, cleaning, decorating or remodeling or causes beyond the control of Tenant; and provided, however, that this shall in no way affect Tenant's other obligations under this Lease, including but not limited to the payment of Rent.

ARTICLE 4

Rent

(A) Tenant agrees to pay to Landlord as rental payments "Rent"; $9,000 per month ($108,000 annually) plus 6% of gross revenues in excess of $1,800,000 (per annum) for years one (1) through five (5), $10,000 per month ($120,000 annually) plus 6% of gross revenues in excess of $2,000,000 (per annum) for years six (6) through year ten (10), $11,000 per month ($132,000 annually) plus 6% of gross revenues in excess of $2,200,000 (per annum) for years eleven (11) through year fifteen (15), or the year one rate increased by the cumulative increase in the CPI, whichever is greater, for years eleven (11) through year fifteen (15) . The monthly rental shall be paid in advance, without demand, on the first day of each calendar month during the term of this Lease prorated on a per diem basis for a fraction of any month. The prorated rent for the first fractional month of the Initial Term shall be paid on the execution of this Lease, if applicable.

As used in this lease, the term "CPI" or "Consumer Price Index" shall mean the average for urban wage earnings and clerical workers, all items, sub-groups, and special groups of items as promulgated by the Bureau of Labor Statistics of the United States Department of Labor, using the year 1999 as a base of 100.

In the event that the Consumer Price Index ceases to incorporate a significant number of items, or if a substantial change is made in the method of establishing the CPI, then the CPI shall be adjusted to the figure that would have resulted had no change occurred in the manner of computing the CPI. In the event that the CPI (or a successor or substitute index) is not available, a reliable governmental or other nonpartisan publication, evaluating the relevant information used in determining the CPI, shall be used in lieu of the CPI.

Where required in this Lease, the cumulative increase in the CPI will be calculated by determining the percentage increase in the CPI during the period of time from the base year of 1999 through the year next previous to the year in which the rental amount is to be calculated.

(B) All sums of money to be paid Landlord by Tenant under this lease will be considered Rent. Any payment of Rent made more than fifteen days after it is due will earn interest at the maximum rate allowed by law per annum ("Default Rate").

(C) Tenant and Landlord agree that Landlord has a right to audit the books and records pertaining to property, which must be kept in accordance with generally accepted accounting principles, and the Tenant further agrees to pay for all costs related to the audit if additional rents are found to be due as a result of such audit.

ARTICLE 5

Indemnity - Insurance by Tenant

(A) Tenant covenants with Landlord that Landlord shall not be liable for any damage or liability of any kind or for any damage or injury to persons or property during the term of this Lease from any cause whatsoever by reason of the use, occupancy and enjoyment of the Premises by Tenant or any person thereon or any person holding under Tenant, and Tenant hereby indemnifies and saves harmless Landlord from all liability whatsoever on account of any such damage or injury and from all liens, claims, and demands arising out of the use of the Premises; provided, however, that Tenant shall not be liable for damage or injury occasioned by reason of the negligent acts or omissions of Landlord, its agents, servants, employees or contractors and Landlord agrees to hold Tenant harmless therefrom, including attorneys fees and costs of defense.

(B) Tenant further covenants and agrees that it will carry and maintain, during the entire term hereof, at Tenant's sole cost and expense as Rent, the following types of insurance, in the amount specified and in the form hereinafter provided for:

        (1) Public Liability and Property Damage:  During the term of this Lease, Tenant shall procure and maintain in full force and effect, at its sole cost, bodily injury and property damage liability insurance with coverage limits of not less than $2,000,000.00 combined, and $500,000.00 each occurrence, insuring against any and all liability of the insured with respect to the Premises or arising out of the maintenance, use or occupancy thereof. All such bodily injury liability insurance and property damage liability insurance may be provided under umbrella-type policies maintained by Tenant.

        (2) Fire and Extended Coverage Insurance:  Tenant agrees that it will, during the term hereof, at its sole expense, keep in full force and effect upon the Premises fire insurance with Special Extended Coverage written by a responsible insurance company authorized to do business in the state where the Premises are located in an amount not less than one hundred percent of the replacement cost of the Restaurant, including furniture, fixtures, equipment and any alterations or additions to the Premises whether owned by Tenant or Landlord. All fire and extended coverage insurance which Tenant is obligated to maintain shall be for the benefit of Landlord and Tenant. In the case of loss or damage by fire or other risks insured against, such insurance proceeds shall be paid to and become the property of Landlord, except that Tenant shall be entitled to the replacement cost of Tenant's Property as defined in Article 10 hereof.

        (3) Policy Form:  All policies of insurance provided for herein shall be issued by insurance companies with general policyholder's rating of not less than A and a financial rating of not less than class XII as rated in the most current available Best's Insurance Reports, and shall be qualified to do business in the state in which the Premises are located. All such policies shall be issued in the name of Tenant and shall name Landlord as an additional insured  thereunder, which policies shall be for the mutual and joint benefit and protection of Landlord and Tenant to the extent of their respective interests in the Premises. Certificates of such insurance shall be delivered to Landlord. As often as any such policy shall expire or terminate, renewal or additional policies shall be procured and maintained by Tenant in like manner and to like extent. All policies of insurance shall contain a provision that the company writing said policy will give to Landlord twenty days' notice in writing in advance of any cancellation or lapse or the effective date of any reduction in the amounts of insurance.

        (4) Mutual Waiver of Subrogation:  Landlord and Tenant hereby grant to each other, on behalf of any insurer providing fire and all-risk coverage to either of them covering the Premises or contents of the Premises, a mutual waiver of any right of subrogation any such insurer of one party may acquire against the other by virtue of payments of any loss under such insurance, such a waiver to be effective so long as each is empowered to grant such waiver under the terms of its insurance policy or policies involved without payment of additional premium. Each party will notify the other in the event of cancellation of such provision, and such waiver shall stand mutually terminated as of the date either Landlord or Tenant ceases to be so empowered.

ARTICLE 6

Taxes

(A) Tenant agrees to pay as Rent during the term of this Lease, before any fine, penalty, interest or cost may be added thereto, or becomes due or is imposed by operation of law for the nonpayment thereof, all taxes, assessments or impositions, license and permit fees and other governmental charges, general or special, ordinary or extraordinary, unforeseen and foreseen, of any kind and nature whatsoever, levied and assessed upon the Premises and personal property therein. Upon request Tenant shall provide Landlord with copies of tax receipts or similar evidence of Tenant's payments thereof or if requested by Landlord, shall deliver to Landlord a check made payable to the taxing authority within seven days after Landlord's request but in no event more than thirty days before such payment is due. Taxes for the first fractional year of the Lease Term and for the last year of the term hereof shall be prorated between Landlord and Tenant so that Tenant shall be responsible for the payment of only those taxes accruing during the term of this Lease. With respect to any assessments which may be levied against or upon the Premises or which under the laws then in force may be evidenced by improvements or other bonds, or may be paid in annual installments, only the amount of such annual installment (with appropriate proration for any partial year) and statutory interest shall be included within the computation of the annual taxes and assessments levied against the premises.

(B) Nothing herein contained shall require Tenant to pay income taxes assessed against Landlord, or any capital levy, corporation franchise, excess profits, estate, succession, inheritance or transfer taxes of Landlord.

(C) Landlord agrees that Tenant retains the right, at Tenant's sole cost and expense, to contest the legality or validity of any of the taxes, assessments, levies or other public charges to be paid by Tenant which are not being contested by Landlord, and in the event of any such contest, the failure on the part of Tenant to pay any such tax, assessment, levy or charge promptly when the same becomes due and payable shall not constitute a default hereunder, and Tenant upon final determination of such contest, shall immediately pay and discharge any judgment rendered against it, together with all costs and charges incidental thereto.

(D) Tenant shall also pay when due any sales, use, transaction, rent, excise or other taxes levied or imposed upon, or measured by, amounts payable by Tenant to Landlord under this Lease other than income taxes imposed upon Landlord.

ARTICLE 7

Triple-net Lease

This Lease is a "Triple-net Lease" and requires the Tenant to pay or reimburse Landlord, should Landlord advance such costs and expenses, all costs associated with the premises including but not limited to, all utilities, insurance, taxes, and repairs and maintenance as described in Articles 5, 6, and 13 of this Lease respectively.

ARTICLE 8

Changes, alterations and Additions/Compliance with Laws

(A) Tenant shall have the right at any time and from time to time during the term of this Lease to make non-structural changes, alterations and additions to the interior of the Premises; provided, however, that Tenant shall make no changes or alterations costing more than $100,000.00 in any twelve month period without first obtaining the written consent of Landlord, which consent shall not be unreasonably withheld or delayed, nor shall such changes materially diminish the value of the Premises.

(B) No such change, alteration or addition shall be undertaken or commenced until Tenant shall have procured and paid for all required permits and licenses of all governmental authorities having jurisdiction.

(C) All work done in connection with any change, alteration or addition shall be done with reasonable diligence, in good workmanlike manner and in compliance with all applicable laws and regulations of all governmental authorities having jurisdiction. The cost of any such change, alteration or addition shall be paid or discharged by Tenant so that the Premises at all times shall be free of any and all liens resulting  therefrom, and Tenant's all-risk coverage for the Premises shall be accordingly increased to cover such modifications.

ARTICLE 9

Mechanic's Liens

(A) Tenant shall pay or cause to be paid all costs for work done by it or caused to be done by it on the Premises, and Tenant shall keep the Premises free and clear of all mechanic's liens and other liens due to work done for Tenant or persons claiming under Tenant. Tenant shall indemnify and save Landlord harmless from all liability, loss, damage, costs, attorneys' fees and all other expenses on account of claims of lien of laborers or  materialmen or others for work performed or material or supplies furnished for Tenant or persons claiming under Tenant and Landlord shall have a similar obligation to Tenant for work or material furnished to Landlord.

(B) Within thirty days after the filing of any mechanic's lien or claim of lien, Tenant shall either:

                        1. have discharged the lien from the Premises by payment or by recording a sufficient bond as provided by law, or

                        2. have purchased and delivered to Landlord a title insurance policy insuring Landlord against the lien.

If a final judgment establishing the validity or existence of a claim or lien for any amount is entered,

Tenant shall pay and satisfy the same immediately.

(C) If Tenant shall fail to comply with the requirements of subparagraph (B) above, Landlord shall have the right, but not the obligation, to pay the lien or claim of lien, regardless  of any dispute over its validity, and the amounts so paid, together with reasonable attorneys' fees and any other costs or expenses incurred in connection with the lien, shall be immediately due and payable from Tenant to Landlord.

(D) Should any lien claims be filed against the Premises or any action affecting the title to the Premises be commenced, the party receiving notice of such lien or action shall forthwith give the other party written notice thereof.

(E) All references herein to "Lien" or "mechanic's lien" shall refer only to a mechanic's lien or claim of lien which states that work has been completed on the Premises and payment has not been forthcoming, and shall not include any statutory notice of record which are for the sole purpose of stating that work has commenced on the Premises.

ARTICLE 10

Signs

Tenant shall be allowed to affix and maintain building signs and free standing monument signs on the Premises with Landlord's written approval as approved from time to time by any requisite governmental agency.

ARTICLE 11

Fixtures and Personal Property

All of Tenant's personal property within the Premises, including furniture, furnishings, and equipment and except property installed or attached to the Premises at Tenant's expense, (collectively "Tenant's Property"), shall remain the property of Tenant, and Tenant shall have the right to remove any and all of Tenant's Property at any time during or upon the termination of the term hereof for purposes of replacement or otherwise. Tenant shall maintain adequate equipment to conduct the business permitted in Article 3 and to conform with regulatory requirements concerning equipment. Tenant shall promptly repair any damage occasioned to the Premises by reason of the removal of Tenant's Property. Any of Tenant's property not removed from the Premises before thirty days after the expiration of the initial term will become the property of Landlord, who may dispose of it as Landlord sees fit, but Tenant will pay storage and disposition costs thereof. As required by Landlord, Tenant will remove any fixtures installed by Tenant at the expiration of the Initial Term as the same may be extended, promptly repairing any damage caused by such removal. All remaining fixtures will become Landlord's property.

ARTICLE 12

Assigning, Mortgaging, Subletting

(A) Tenant shall not assign, transfer, mortgage, pledge, hypothecate or encumber this Lease or Tenant's interest in and to the Premises or any part thereof or sublet all or any portion of the Premises without first procuring the written consent of Landlord, which consent shall not be unreasonably withheld or delayed, provided that Tenant shall continue to remain liable to Landlord under this Lease. Any attempted transfer, assignment or subletting without the written consent of Landlord shall be void and confer no rights upon any third person.

(B) Each transfer, assignment or subletting to which there has been consent shall be by an instrument in writing in a form and substance satisfactory in Landlord's reasonable judgment. The transferee, assignee or sublessee shall agree in writing for the benefit of Landlord herein to assume, to be bound by and to perform the terms, covenants and conditions of this Lease to be done, kept and performed by Tenant.

(C) Notwithstanding the foregoing, Tenant shall have the right, subject to lease requirements and only with Landlord's consent, to assign or transfer this Lease or sublet the Premises or any part thereof to a successor corporation of Tenant, to any corporation into which or with which Tenant merges or consolidates, or to any parent, subsidiary or affiliated corporation, including any corporation which controls or is under the control of Tenant, or to any franchisee of Tenant or of any corporation affiliated with Tenant; provided that any such assignee or subtenant shall deliver to Landlord a copy of a document satisfactory in Landlord's reasonable judgment under which such assignee or subtenant agrees to assume and perform all of the terms and conditions of this Lease on  Tenant's part to be performed from and after the effective date of the assignment or sublease, and further provided that Tenant shall guarantee the financial performance of the assignee under this Lease.

ARTICLE 13

Repairs and Maintenance

(A) Subject to the provisions of Article 14, Tenant shall at its own cost and expense, as Rent, keep and maintain the Premises, including the parking area and all grounds surrounding the building on the Premises in good and sanitary order, condition and repair, and make all necessary repairs and replacements to the Premises, including the parking areas and such grounds, including but not limited to roof, pipes, heating, air conditioning and ventilation systems, plumbing system, windowglass, windows, ceilings, interior walls, floors, skylights, doors, cabinets, draperies, carpeting and other floorcoverings, electrical wiring, light fixtures and switches and all other fixtures and all the appliances and appurtenances and all landscaping, lawn maintenance and watering systems belonging thereto. All maintenance, repairs, and replacements shall be done in a first-class manner at least equal in quality to the original work. In the event Tenant shall default in performing maintenance, repairs or replacements, Landlord may (but shall not be so required) perform such maintenance, repairs or replacements for Tenant's account, and the expenses thereof shall constitute and be immediately due and payable as additional rent.

(B) Landlord shall not be obligated to make any repairs, replacements, alterations, additions or improvements in or to the Premises or grounds of the Premises except for any material damage caused by the negligence of Landlord or its agents, servants, employees or contractors. Tenant may, after having given thirty days prior written notice to Landlord, repair any such damage caused by the negligence of Landlord or its agents, servants, employees or contractors, so long as Landlord is not diligently pursuing such repair.

ARTICLE 14

Reconstruction

(A) In the event the Premises shall be destroyed by fire or any other perils, Tenant shall:

1. Within a period of sixty days thereafter, commence repair, reconstruction and restoration of the Premises and prosecute the same diligently to complete in accordance with plans prepared by Tenant and approved by Landlord, which approval shall not be unreasonable withheld or delayed, in which event this Lease shall continue in full force and effect and for such purpose Landlord shall make available to Tenant the proceeds of all insurance received by Landlord with respect to such destruction, or

2. In the event more than 33 1/3 percent of the then replacement value of the Premises is destroyed within the last three years of the Initial Term or during the last three years of any extended term, either Landlord or Tenant (provided it is not then in default hereunder) may at its option elect to terminate this Lease by giving written notice of such termination to the other party within thirty days after such destruction, in which event this Lease shall terminate upon the giving of such notice, and all insurance proceeds attributable to the Premises (except for that portion attributable to Tenant's Property) shall be payable to Landlord and neither party shall thereafter have any further rights or obligations hereunder.

(B) Upon any termination of this Lease under any of the provisions of this Article, the parties shall be released thereby without further obligations to the other party coincident with the surrender of possession of the Premises to Landlord except for items which have theretofore accrued and remain unpaid.

ARTICLE 15

Bankruptcy - Insolvency

Tenant agrees that in the event all or substantially all of Tenant's assets are placed in the hands of a receiver or trustee, and such receivership or trusteeship continues for period of ninety days, or should Tenant make an assignment for the benefit of creditors or be finally adjudicated a bankrupt, or should Tenant institute any proceedings under the Bankruptcy Code as the same now exists or under any amendment thereof which may hereafter be enacted, or under any other act relating to the subject of bankruptcy wherein Tenant seeks to be adjudicated a bankrupt, or to be discharged of its debt, or to effect a plan of liquidation, composition or reorganization, or should any involuntary proceeding not be removed within one hundred twenty days thereafter, then this Lease or any interest in and to the Premises shall not become an asset in any and all rights or remedies of Landlord hereunder or by law provided, it shall be lawful for Landlord to declare the term hereof ended and to reenter the Premises and take possession thereof and remove all persons therefrom, and Tenant shall have no further claim thereon or hereunder.

ARTICLE 16

Defaults/Remedies

Tenant's Default; Landlord's Remedies and Lien

(A) Tenant's Default. This Lease is made upon the condition that Tenant shall punctually and faithfully perform all of the covenants, conditions and agreements to be performed by Tenant as set forth in this Lease. The following shall each be deemed to be an event of default (an "Event of Default"):

        (a) The failure of Tenant to pay the Rent, or any installment thereof, if such failure continues for ten (10) days after such payment is due, without the necessity of Landlord giving Tenant notice of any such failure, which notice Tenant hereby waives:

        (b) Repetition or continuation of any failure to timely pay any Rent, where such failure shall continue or be repeated for two (2) consecutive months, or more than four (4) times in any period of twelve (12) consecutive months (As used in this subsection (b) "timely" shall mean when due, without regard to any grace period as provided in subsection (a) above);

        ( c ) The failure of Tenant to observe or perform any of the covenants, terms or conditions set forth in Article 13 relating to assignments, mortgaging, and subletting) or when such failure continues for a period of fifteen (15) days, without the necessity of Landlord giving Tenant notice of any such failure, which notice Tenant hereby waives;

        (d) The failure of Tenant to observe or perform any other covenant, term or condition set forth in this Lease when said failure continues for a period of fifteen (15) days after written notice thereof from Landlord to Tenant, or if such failure cannot reasonably be cured within fifteen (15) days, when said failure continues for a period of  sixty (60) days after written notice thereof from Landlord to Tenant provided that Tenant commences to cure said failure within such fifteen (15) day period and continues diligently to pursue the curing of the same until completed.

        (e) The commencement of levy, execution, attachment or other process of law upon, on or against the estate created in Tenant hereby; the appointment of a liquidator, receiver, custodian, sequestrator, conservator, examiner, trustee or other similar officer for Tenant, and the continuation of such appointment for a period of thirty (30) days, or the insolvency of Tenant or any assignment by Tenant for the benefit of creditors;

        (f) The commencement of a case by or against Tenant under any insolvency, bankruptcy, creditor adjustment or debtor rehabilitation laws, whether state or federal, or the determination by Tenant to request relief under any insolvency proceeding, including any insolvency bankruptcy, creditor adjustment or debtor rehabilitation laws, whether state or federal. Such commencement or determination by Tenant shall terminate the estate created in Tenant hereby and neither this Lease nor the Premises shall become an asset in any such proceeding;

        (g) Tenant's failure to pay when due and payable, all taxes, assessments and government charges imposed upon it or which it is required to withhold and pay over, without the necessity of Landlord giving Tenant notice of any such failure, which notice Tenant hereby waives;

        (h) The enactment of any rent control law or ordinance which requires reductions in any Rent payable hereunder or which prohibits, or  reduces the amount of, any increase of Rent provided for in this Lease; and

        ( i ) The repetition of any failure to observe or perform any one or more of the covenants, terms or conditions hereof (whether or not any such failure is specified in subsections (a) through (i) above) more than four (4) times, in the aggregate, in any period of twelve (12) consecutive months, without regard to any required notice and/or grace period which may be provided herein. Notwithstanding the foregoing, Landlord shall not be required to give Tenant any notice or period to cure any failure or other circumstance described above before exercising Landlord's remedies hereunder if Landlord in good faith reasonable believes that emergency action is necessary to prevent loss of or injury to persons or property or to prevent the incurrence of a cost or expense which Landlord reasonable believes Tenant W ill be unable or unwilling to pay. In such event Landlord may exercise such remedies and take such other action as it deems reasonable appropriate and shall promptly thereafter give Tenant notice thereof.

(B) No Waiver: Remedies.  Landlord's failure to insist upon strict performance of any covenant, term or condition of this Lease or to exercise any right or remedy shall not be deemed (i) a waiver of any default or breach hereunder so long as the same shall continue to exist, or (ii) a waiver or relinquishment for the future of such performance, right or remedy. Upon an Event of Default above, have the following remedies in addition to all other rights and remedies specified elsewhere in this Lease and which may now or hereafter provided by law or equity, to which Landlord may resort cumulatively, successively or in the alternative:

Landlord may decline to retake possession of the Leased Premises and may sue for the Rent as such Rent becomes due or sue for the present value of the Rent to accrue under this Lease and other damages or remedies to which Landlord may be entitled.

Landlord may elect to retake possession of the Leased Premises and, without initially  reletting the Leased Premises, sue for damages in an amount equal to the present value of the Rent to accrue under this Lease and other damages or remedies to which Landlord may be entitled.

Landlord may retake possession of the Premises,  relet the Premises and sue for damages. During the period of time that Landlord is trying to  relet the Premises, Tenant will be liable for damages in an amount equal to the full Rent. Landlord may sue from time to time for the Rent and/or damages which accrue under this Lease, or may sue for the present value of the total Rent and /or damages which will be due or which may be sustained throughout the remaining term in accordance with the measure of damages set forth below. The election to sue either periodically or for the total amount shall be at the sole option and discretion of Landlord. In any action brought by Landlord to recover Rent and/or damages, Tenant waives to the fullest extent permitted by law any applicable statute of limitations.

Landlord may elect to seek declaratory relief, specific performance and/or injunctive relief (prohibitive or mandatory) with respect to any covenant, term or condition set forth in this Lease.

Landlord may terminate this Lease, re-enter the Property and take possession thereof, remove all persons and property therefrom, and sue for damages, in which event Tenant shall have no further claim or right hereunder.

(C) Provisions Regarding Landlord's Remedies. The following provisions shall apply with respect to Landlord's remedies:

Landlord's re-entry or taking of possession of the Leased Premises shall not be construed as an election to terminate this Lease unless Landlord gives written notice of such termination. Notwithstanding any reletting without termination, Landlord may, at any time after a  reletting and subject to the provisions herein, elect to deem this Lease terminated for any then uncured default. Any re-entry or taking of possession by Landlord shall not affect or diminish the ongoing obligation or liability of Tenant for all Rent and other obligations due and owing under this Lease. Re-entry by the Landlord will not obligate the Landlord to mitigate damages by  reletting, unless otherwise provided by applicable law. Wherever in this Lease Landlord has reserved or is granted the right of re-entry into the Premises, the use of such word is not intended, nor shall it be construed to be limited to its technical legal meaning.

If Landlord re-enters, it may take possession of the Premises, remove all persons and property from the Premises and store such property at Tenant's expense or resort to legal process without being deemed guilty of trespass or becoming liable for any loss or damage occasioned thereby. Tenant agrees that if Landlord stores such property, Landlord shall have a lien thereon pursuant to 42 Okla. Stat. 91.

Landlord may relet the Premises or any part thereof for such term or terms (which may extend beyond the Term), and at such rentals and upon such other terms and conditions as Landlord in its sole discretion deems advisable and such reletting shall not in any way relieve Tenant from the obligations and liabilities under this Lease. Any and all amounts received upon such reletting and all rentals received by Landlord therefrom shall be applied first to any indebtedness owed by Tenant to Landlord other than Rent due hereunder, then to pay any cost and expense of reletting, including brokers' and attorneys' fees and costs of alterations and repairs, then to the Rent due hereunder. If there is any residue, it shall be applied (i) to any other damages incurred by Landlord as a result of Tenant's default, or (ii) if this Lease is not terminated, to any deficiencies between the rentals received and the Rent that may become due hereunder. In such latter event, any funds due Tenant shall be paid at the expiration of the Term. It is understood that said funds shall not draw interest while held by Landlord as security for Tenant's obligations hereunder.

To the extent permitted by law, Tenant waives any right of redemption, re-entry or  repossession and any defense of merger.

Landlord may pursue one or more remedies against Tenant and need not elect its remedy until such time as findings of fact have been made by a judge or jury, whichever is applicable, in a trial court of competent jurisdiction.

The covenant to pay Rent and other amounts hereunder and to perform all obligations hereunder are independent covenants from the other terms and provisions of this Lease and Tenant shall have no right to hold back, offset or fail to pay any such amounts for any  alleged default by Landlord or for any other reason whatsoever.

After any default under this Lease, Landlord may accept any partial payment of the sums then due under this Lease without prejudice to its rights to collect the balance of the sums then due and without prejudice to any other right or remedy Landlord may have.

(D) Damages Upon Termination. If Landlord elects to terminate this Lease, Landlord may recover from Tenant the following damages, in addition to its other remedies:

        (i) Any unpaid Rent which has been earned as of the time of such termination, including interest thereon at the Default Rate; plus

        (ii) The amount by which any unpaid Rent which would have been earned after termination through the date of judgment exceeds the greater of (A) the amount of rent that Tenant proves could have been reasonably obtained by Landlord upon a  reletting of the Leased Premises for such period, or (B) the amount of rent actually received by Landlord for such period, together with interest thereon at the Default Rate; plus

        (iii) The amount by which the Rent which would have accrued for the balance of the Term after the date of judgment exceeds the amount of rent that tenant proves could be reasonably obtained by Landlord for such period, reduced to present value at the Default Rate; plus

        (iv) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result  therefrom including, without limitation, the cost of repairing the Premises, the cost of reletting the Premises (including, without limitation, the cost of remodeling and brokers' fees), and reasonable attorneys' fees; plus

        (v) At Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable state law. Damages shall be due and payable from the date of termination.

(E) Landlord's Self-Help. In addition to Landlord's rights of self-help set forth elsewhere in this Lease, if Tenant at any time fails to perform any of its obligations under this Lease in a manner reasonable satisfactory to Landlord, Landlord shall have the right, but not the obligation, upon giving Tenant at least three (3) days' prior notice of its election to do so (but in the event of any emergency, no prior notice shall be required), to perform such obligations on behalf of and for the account of Tenant and to take all such action to perform such obligations. In such event, Tenant shall reimburse Landlord on demand the costs and expenses incurred by Landlord in connection therewith as additional Rent, with interest thereon from the dates) such costs and expenses are incurred until paid at the Default Rate. The performance by Landlord of any such obligation shall not constitute a waiver of any default by Tenant or a release of  Tenant therefrom.

(F) Landlord's Agents. In exercising any rights hereunder or taking any actions provided for herein, Landlord may act through its employees, agents or independent contractors as authorized by Landlord.

(G) Landlord's Lien. Tenant hereby grants to Landlord a lien and security interest on all property of Tenant now or hereafter placed in or upon Premises including, but not limited to, all fixtures, machinery, equipment, furnishings and other articles of personal property now or hereafter placed in or upon the Leased Premises by or on behalf of Tenant, and all proceeds of the sale or other disposition of such property (collectively, the "Collateral") and such property shall be and remain subject to such lien and security interest of Landlord to secure the payment of all Rent and other sums agreed to be paid by Tenant herein. Said lien and security interest shall be in addition to and cumulative of any Landlord's lien provided by law. This Lease shall constitute a security agreement under the Oklahoma Uniform Commercial Code (the "UCC") so that Landlord shall have and may enforce a security interest in the Collateral. Tenant agrees to execute as  debtor, such financing statements and continuation statements and any further documents as Landlord may now or hereafter reasonably request in order that such security interests) may be and remain perfected pursuant to the UCC. Landlord may at its election at any time file a copy of this Lease as a financing statement. Landlord, as secured party, shall be entitled to all of the rights and remedies afforded a secured party under the UCC, which rights and remedies shall be in addition to and cumulative of any Landlord's liens and rights provided by law or by the other terms and provisions of this Lease.

ARTICLE 17

Condemnation

If any portion of the Premises is taken by appropriation for public use under right of eminent domain, or if a voluntary conveyance is made to the condemning authority in lieu of eminent domain proceedings, Landlord and Tenant agree that their respective rights shall be governed as follows:

(A) In the event that a taking occurs which, in the reasonable judgment of Landlord does not substantially impair Tenant's use of the Premises, Landlord shall be entitled to retain the entire proceeds from the eminent domain proceeding (except for any portion attributable to Tenant's Property as defined in Article 12 hereof or damage to or interruption of Tenant's business), but it shall be obligated to repair or restore the Premises required by any alteration or damage resulting from such taking, and Rent will not abate.

(B) In the event a taking occurs which, in the reasonable judgment of Landlord substantially impairs Tenant's use of the Premises, Tenant shall have the right to terminate this Lease upon thirty days notice to Landlord but notice shall be given no later than the date title vests in the condemning authority.

In no event shall Tenant have any claim against Landlord for any portion of the award paid by the condemning authority, whether for the fee or the leasehold, as a result of such taking or conveyance under threat of condemnation, and Tenant does hereby assign to Landlord all of Tenant's right, title and interest in and to any and all amounts so paid or awarded except for any award made specifically to Tenant by the condemning authority for loss or interruption of Tenant's business or Tenant's Property as defined in Article 11 hereof or for the cost of moving all of the same, or for the unamortized cost of Tenant's leasehold improvements paid for by Tenant and depreciated on a straight-line basis over the term of this Lease.

ARTICLE 18

Quiet Enjoyment - Covenants

Tenant, upon payment of all Rent and observing and keeping all the covenants, agreements and conditions of this Lease on its part to be kept, shall quietly have and enjoy the Premises during the term of this Lease, without hindrance or molestation by anyone claiming by, from, through or under Landlord, subject and subordinate, however, to the exceptions, reservations and conditions of this Lease.

ARTICLE 19

Notices and Payment of Rent

Whenever in this Lease it shall be required or permitted that notice or demand be given or served by either party to this Lease to or on the other parry, such notice or demand shall be given or served by personal delivery or by certified or registered mail, return receipt requested, postage prepaid, addressed as follows:

TO LANDLORD: 

Great Places of Shawnee, L.L.C.
2001 Cambridge Way
Edmond, Oklahoma 73013

WITH COPY TO:

 James D. Kallstrom
1200 Bank of Oklahoma Plaza, 201 Robert S. Kerr Ave 
Oklahoma City, Oklahoma 73102

TO TENANT: 

Eateries, Inc.
1220 S. Santa Fe
Edmond, Oklahoma 73003

WITH COPY TO: 

Tom Golden

                   Hall, Estill, Gable, Golden & Nelson
                   320 S. Boston Avenue, Suite 400
                   Tulsa, Oklahoma 74103-3708;

Every notice, demand, request or communication hereunder which is given by personal delivery shall be deemed given as of the date and time of such personal delivery, and every notice, demand, request or communication hereunder sent by mail in the manner described above shall be deemed to have been given or served upon mailing. All rent and other payments shall be either delivered or sent by first-class mail and paid by Tenant to Landlord at the address above provided. Either party may change its address by giving written notice to the other parties in the manner described in this Article.

ARTICLE 20

Obligations of Successors

The parties hereto agree that all the provisions hereof are to be construed as covenants and agreements as though the words importing such covenants and agreements were used in each separate paragraph hereof, and that all of the provisions hereof shall bind and inure to the benefits of the parties hereto and their respective legal representatives, successors and assigns.

ARTICLE 21

Force Majeure

Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, inability to obtain labor or materials or reasonable substitutes therefor, governmental restrictions, governmental regulations, governmental controls, judicial orders, enemy or hostile governmental action, civil commotion, fire or other casualty, and other causes beyond the reasonable control of the party obligated to perform, shall excuse the performance by such party for a period equal to any such prevention, delay or stoppage, except the obligations imposed with regard to Minimum Annual Rental and other charges to be paid by Tenant pursuant to this Lease. It is expressly agreed that any other time limit provision contained in this Lease shall be extended for the same period of time lost by causes hereinabove set forth.

ARTICLE 22

Holding Over

It is hereby agreed that in the event of Tenant holding over after termination of this Lease with the consent of Landlord, the tenancy thereafter shall be from month to month in the absence of a written agreement to the contrary, and such month-to-month tenancy shall be terminable on thirty days written notice given by either Landlord or Tenant. During such month-to-month tenancy, Tenant shall pay to Landlord rent equal to 125 percent of the monthly payment of Minimum Annual Rental paid in the previous lease year.

ARTICLE 23

Estoppel Certificates / Subordination / Non-Disturbance

At any time and from time to time, Landlord on at least seven days prior notice by tenant, and Tenant, on at least seven days prior request by landlord, will deliver to the party making such request a statement in writing certifying that this Lease is unmodified and in full force and effect (or if there shall have been modifications, that the same is in full force and effect as modified and stating the modifications), any other statements typically found in such  estoppel certificates which Landlord or Tenant may reasonably request and the date to which the rent and any other deposits or charges have been paid and stating whether or not to the best knowledge of the party executing such certificate, the party requesting such statement is in default in the performance of any covenant, agreement or condition contained in this Lease and, if so, specifying each such default of which the executing party may have knowledge. This Lease Agreement shall be subordinate to any mortgage or other hypothecation for security now or in the  future placed on the real property of which the Premises are a part, and to all advances made on such security, and on all renewals, modifications, consolidations, replacements, and extensions of such mortgage or other hypothecation. In spite of such subordination, Tenant's right to quiet possession of the Premises shall not be disturbed if Tenant is not in default and so long as Tenant shall pay the rent and observe and perform all of the provisions of this Lease Agreement, unless this Lease Agreement is otherwise terminated pursuant to its terms.

Tenant also agrees to execute any documents required to effectuate such subordination, and failure to do so within ten (10) days after written demand, does make, constitute, and irrevocably appoint Landlord as Tenant's attorney-in-fact, and in Tenant's name, place, and stead, to do so.

Upon a foreclosure of any mortgage or execution of any deed in lieu of foreclosure, or declaration of Landlord's default under any hypothecation for security and demand by Landlord's successor, Tenant shall attorn to and recognize such successor as Landlord under this Lease Agreement.

ARTICLE 24

Memorandum of Lease

Landlord and Tenant agree that this Lease shall not be recorded but that a Memorandum of Lease describing the Premises and stating the term of this Lease, Tenant's rights of renewal and the addresses of Landlord and Tenant may be executed if desired by either party, and the same may thereafter be recorded by either Landlord or Tenant. The form of Memorandum is attached hereto as Exhibit "B".

ARTICLE 25

Representations and Warranties

The Landlord makes no representations or warranties regarding the condition and/or fitness for a particular use of the Premises or personal property located on the Premises. Tenant has inspected the Premises and such personal property, and accepts the Premises and all such property in "as is condition." Tenant further agrees to make whatever improvements or alterations at it's own expense to the Premises that would be required to operate in compliance with all Federal and state regulatory requirements. Landlord makes no representations or warranties concerning the ADA or any environmental issues.

ARTICLE 26

Waiver

No waiver of any condition or any legal right or remedy shall be implied by the failure to declare a forfeiture or for any other reason, and no waiver of any condition or covenant shall be valid unless it is in writing and signed by the waiving party. No waiver by either party of any covenant or condition herein shall constitute a waiver of any further breach or continuance of the same condition or covenant or any other condition or covenant.

IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease on the day and year first above written.

LANDLORD:

GREAT PLACES OF SHAWNEE, L.L.C.
By:_______________________________
James Burke , Managing Member

TENANT: 

EATERIES, 1NC.
By:_______________________________
Vincent F. Orza, Jr. President

State of Oklahoma    )
                                  ) ss:
County of Oklahoma )

This instrument, was acknowledged before me on August 1, 1999, by James Burke, as Managing Member of Great Places of Shawnee, L.L.C., an Oklahoma limited liability company, on behalf of said limited liability company, as Landlord.

Notary Public
My Commission Expires:

Seal

State of Oklahoma  )
                                ) ss:
County of Oklahoma )

This instrument was acknowledged before me on August 1, 1999, by Vincent F. Orza, Jr., as President of EATERIES, INC., an Oklahoma corporation, on behalf of said corporation as Tenant.

Notary Public
My Commission Expires.

Seal

EX-21.1 8 ex21.htm EXHIBIT 21.1

Exhibit 21

Eateries, Inc.

Subsidiaries of the Registrant

Name of Subsidiary	Jurisdiction of Incorporation	Percentage of Ownership
Fiesta Restaurants, Inc.	Oklahoma	100.0
Roma Foods, Inc.	Oklahoma	100.0
Garfield Management, Inc.	Oklahoma	100.0

EX-23.1 9 ex23.htm EXHBIT 23.1 3:

CONSENT OF INDEPENDENT AUDITORS

As independent public accountants, we hereby consent to the incorporation by reference of our report dated March 1, 2001, included in this Form 10-K for the year ended December 31, 2000, into the Company's previously filed Registration Statement (Form S-8 No. 33-41279).

ARTHUR ANDERSEN LLP

Oklahoma City, Oklahoma

March 6, 2001

-----END PRIVACY-ENHANCED MESSAGE-----

EX-10.1

EMPLOYMENT CONTRACT

EMPLOYMENT CONTRACT, dated as of January 22, 2001, between EATERIES, INC., an Oklahoma corporation (the "Company"), and VINCENT F. ORZA, JR., an Oklahoma resident ("ORZA").

ORZA currently serves as the President, and CEO of the Company under a three year Employment Contract dated January 1, 1995 and extended to December 31, 2000;

The Company desires to enter into a new three (3) year Employment Contract with ORZA to be effective on January 1, 2001 in substitution of his existing three year Employment Agreement and ORZA desires to accept such Employment Contract in accordance with the terms and conditions hereinafter set forth.

NOW THEREFORE, ORZA and the Company, in consideration of the mutual covenants and promises herein contained do hereby agree as follow:

1. Term. The Company shall employ ORZA, and ORZA shall serve as the President and CEO of the Company, on the terms and conditions of this Employment Contract for a three (3) year term commencing January 1, 2001, and ending December 31, 2003, unless extended or terminated earlier as hereinafter provided. The initial three (3) year Term of this Employment Contract shall be automatically extended for one (1) additional calendar year on the 31st day of each December during Term hereof unless ORZA is given written notice by the Compensation Committee of the Board of Directors of the Company sixty (60) days prior to the 31st day of December that the Term is not to be thus automatically extended for one (1) additional year. If thus extended each year, then on January 1st of each year, this Employment Contract shall have three (3) years remaining to the Term hereof.

2. Duties and Services. During the Term hereof ORZA shall be employed in the business of the Company as President and CEO and shall perform such services diligently, faithfully and consistent with the responsibilities of such positions. In performance of his duties ORZA shall report to the Board of Directors of the Company. ORZA shall be available to travel as the needs of the business require.

3. Compensation.

(a) Salary. As a compensation for his services hereunder, the Company shall pay ORZA, during the Term, a salary payable in equal bi-weekly installments at the annual rate of $325,000.00, subject to annual re-evaluation by the Compensation Committee of the Board of Directors of the Company. The annual re-evaluation shall be based in part upon the attainment of corporate objectives mutually agreed upon by ORZA and the Board of Directors of the Company. Nothing contained herein shall preclude ORZA from participating in future executive bonus plans, pension or profit sharing, deferred compensation, stock option, or other employee benefit plans of the Company, if he meets the eligibility requirements therefor.

(b) Options. As additional compensation ORZA has been granted nonqualified options of Eateries, Inc. ORZA shall be entitled to additional grants of nonqualified stock options of Eateries, Inc. upon approval of the Compensation Committee of the Board of Directors of the Company.

4. Expenses and Vacation. ORZA shall be entitled to reimbursement for reasonable travel and other out-of-pocket expenses necessarily incurred in the performance of his duties hereunder, upon submission and approval of written statements and bills in accordance with the then regular policies and procedures of the Company. ORZA shall be entitled to a car allowance payable in equal bi-weekly installments of $325.00 commencing January 1, 2001. ORZA shall be entitled to reasonable vacations in accordance with the then regular policies and procedures of the Company governing executives.

5. Representations and Warranties of ORZA. ORZA represents and warrants to the Company that (a) he is under no contractual or other restriction or obligation which is inconsistent with the execution of this Contract, the performance of his duties hereunder, or the other rights of the Company hereunder and (b) he is under no physical or mental disability that would hinder his performance of duties under this Employment Contract.

6. Confidential Information. All trade secrets, or other proprietary or confidential information which ORZA may now possess, may obtain during or after the Term hereof, or may create prior to the end of the period ORZA is employed by the Company under this Contract or otherwise relating to the business of the Company or its affiliates shall not be published, disclosed, or made accessible by him to any other person, firm, or corporation either during or after the termination of his employment or used by him except during the Term hereof in the business and for the benefit of the Company. ORZA shall return all tangible evidence of such trade secrets, or other proprietary or confidential information to the Company prior to or at the termination of his employment. "Trade secrets" shall include, but not be limited to recipes developed or utilized by the Company, as well as methods of operations developed and utilized by the Company.

Additionally, during the Term hereof, ORZA shall not acquire, directly or indirectly, any interest in any restaurants with concepts similar to Company restaurants, unless specifically authorized by the Board or Directors of the Company in writing. Notwithstanding the foregoing, ORZA shall not be prevented from owning any securities of any competitor of the Company which are regularly traded on any national securities exchange or in the over-the-counter market; provided, that the same shall not result in ORZA and his immediate family owning, legally or beneficially, at any time, ten percent (10%) or more of the voting securities of any such company. In the event that the provisions of this section should ever be deemed to exceed the time, geographic or occupational limitations permitted by applicable law, then such provisions shall be reformed to the maximum time, geographic, or occupational limitations permitted by applicable law.

7. Termination. Notwithstanding anything herein contained, if on or after the date hereof and prior to the end of the Term hereof,

(a) either (i) ORZA shall be physically or mentally incapacitated or disabled or otherwise unable fully to discharge his duties hereunder for a period of six (6) months, (ii) ORZA shall be convicted of a felony crime by a court of last resort, (iii) ORZA shall commit any act or omit to take any action in bad faith and to the substantial detriment of the Company, or (iv) ORZA shall breach any term of this Contract and such breach shall directly cause a material adverse impact upon the Company and he shall fail to cure and correct such breach within ten (10) days after notice to ORZA by the Company of the same, or such longer period as may be necessary with due diligence to cure such breach then, and in each case, the Company shall have the right to give notice of termination of ORZA's services hereunder as of a date (not earlier than ten (10) days from such notice in the case of items (ii), (iii) or (iv) and not earlier than six (6) months from such notice in the case of item (i) to be specified in such notice and this Agreement shall terminate on the date so specified; or

(b) ORZA shall die, then this Employment Contract shall terminate on the date of ORZA death,

Whereupon ORZA or his estate, as the case may be, shall be entitled to receive only his salary at the rate provided in Section 3 to the date on which termination shall take effect. In the event of ORZA's death, his estate or designated beneficiary shall receive, in addition to the foregoing amount, an amount equal to two (2) year's salary payable by the Company upon receipt of the life insurance proceeds of ORZA's key man insurance policy, if any and if not sufficient then within ninety (90) days of ORZA's death.

8. Merger, Et Cetera. In the event of a future disposition of (or including) the properties and business of the Company, substantially as an entirety, by merger, consolidation, sale of assets, or otherwise, then the Company may elect:

(a) To assign this Contract and all of its rights and obligations hereunder to the acquiring of surviving entity; provided that such entity shall be capable of assuming and performing and shall assume in writing and perform all of the obligations of the Company hereunder; provided further that the Company (in the event and so long as it remains in business as an independent going enterprise) shall remain liable for the performance of its obligations hereunder in the event of an unjustified failure of the acquiring entity to perform its obligations under this Contract; and provided finally that the duties assigned ORZA are commensurate with those held prior to the merger and that a relocation of more than 50 miles from the city limits of the City of Oklahoma City, is not required to fulfill such duties; or

(b) In addition to its other rights of termination, to terminate this Contract upon at least sixty (60) days' written notice by paying ORZA two (2) year's salary and car allowance at the rate provided in Section 3 and 4 on the date which such termination shall take effect.

9. Liquidation Damages. The parties hereto covenant and agree that, in the event the Company shall breach the terms of this Employment Contract or the Contract shall terminate under Section 8 (b), it shall pay to ORZA, as liquidated damages for such breach or termination, an amount equal to that which would have been received by him under Section 3(a) and 4 for then remaining Term of this Employment Contract, plus reasonable attorneys' fees, if any. Such amount shall be promptly paid upon a determination of breach or termination, but in no event later than thirty (30) days after such determination.

10. Survival. The covenants, agreements, representation, and warranties contained in or made pursuant to this Employment Contract shall survive ORZA's termination of employment, irrespective of any investigation made by or on behalf of any party.

11. Modification. This Employment Contract sets forth the entire understanding of the parties with respect to the subject matter hereof, and may be modified only by a written instrument duly executed by each party.

12. Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be mailed by certified mail, return receipt requested, or delivered against receipt, to the party to whom it is to be given at the then address of such party (or to such other address as the party shall have furnished in writing). Notice to the estate of ORZA shall be sufficient if addressed to ORZA as provided in this Section 12. Any notice or other communication given by certified mail shall be deemed given at the time of certification thereof, except for a notice changing a party's address which shall be deemed given at the time of receipt thereof.

13. Waiver. Any waiver by either party of a breach of any provision of this Contract shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any provision in this Contract. The failure of a party to insist upon strict adherence to any term of this Contract on one or more occasions shall not be considered a waiver or deprive that party of the right hereafter to insist upon strict adherence to that term or any other term of this Contract. Any waiver must be in writing and signed by the parties.

14. Binding Effect. ORZA's rights and obligations under this Contract shall not be transferable by assignment or otherwise, such rights shall not be subject to commutation, encumbrance, or the claims of ORZA's creditors, and any attempt to do any of the foregoing shall be void. The provisions of this Contract shall be binding upon and inure to the benefit of ORZA and his heirs and personal representatives, and shall be binding upon and inure to the benefit of the Company and its successors and those who are its assigns.

15. No Third Party Beneficiaries. This Employment Contract does not create, and shall not be construed as creating, any rights enforceable by any person not a party to this Employment Contract (except as provided in Section 14).

16. Headings. The headings in this Employment Contract are solely for the convenience of reference and shall be given no effect in the construction or interpretation of this Contract.

17. Counterparts: Governing Law. This Employment Contract may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. It shall be governed by and construed in accordance with the laws of the State of Oklahoma, without given effect to the conflict of laws.

IN WITNESS WHEREOF, the parties have duly executed this Employment Contract as of the date first above written.

"COMPANY"

EATERIES, INC., an Oklahoma corporation

By: /s/

Vice President

"ORZA"

_/s/

VINCENT F. ORZA, JR.

As approved by a vote of the Compensation Committee of the Board of Directors of Eateries, Inc. on January 10, 2001.

EX-10.2

4:

EMPLOYMENT CONTRACT

EMPLOYMENT CONTRACT, dated as of January 22, 2001, between EATERIES, INC., an Oklahoma corporation (the "Company"), and JAMES M. BURKE, an Oklahoma resident ("BURKE").

BURKE currently serves as the Vice President-Operations of the Company under a three year Employment Contract dated October 1, 1995 and extended to December 31, 2000;

The Company desires to enter into a new three (3) year Employment Contract with BURKE to be effective on January 1, 2001 in substitution of his existing three year Employment Agreement and BURKE desires to accept such Employment Contract in accordance with the terms and conditions hereinafter set forth.

NOW THEREFORE, BURKE and the Company, in consideration of the mutual covenants and promises herein contained do hereby agree as follow:

1. Term. The Company shall employ BURKE, and BURKE shall serve as the Vice President-Operations of the Company, on the terms and conditions of this Employment Contract for a three (3) year term commencing January 1, 2001, and ending December 31, 2003, unless extended or terminated earlier as hereinafter provided. The initial three (3) year Term of this Employment Contract shall be automatically extended for one (1) additional calendar year on the 31st day of each December during Term hereof unless BURKE is given written notice by the Compensation Committee of the Board of Directors of the Company sixty (60) days prior to the 31st day of December that the Term is not to be thus automatically extended for one (1) additional year. If thus extended each year, then on January 1st of each year, this Employment Contract shall have three (3) years remaining to the Term hereof.

2. Duties and Services. During the Term hereof BURKE shall be employed in the business of the Company as Vice President-Operations and shall perform such services diligently, faithfully and consistent with the responsibilities of such positions. In performance of his duties BURKE shall report to the Board of Directors of the Company. BURKE shall be available to travel as the needs of the business require.

3. Compensation.

(a) Salary. As a compensation for his services hereunder, the Company shall pay BURKE, during the Term, a salary payable in equal bi-weekly installments at the annual rate of $200,000.00, subject to annual re-evaluation by the Compensation Committee of the Board of Directors of the Company. The annual re-evaluation shall be based in part upon the attainment of corporate objectives mutually agreed upon by BURKE and the Board of Directors of the Company. Nothing contained herein shall preclude BURKE from participating in future executive bonus plans, pension or profit sharing, deferred compensation, stock option, or other employee benefit plans of the Company, if he meets the eligibility requirements therefor.

(b) Options. As additional compensation BURKE has been granted nonqualified options of Eateries, Inc. BURKE shall be entitled to additional grants of nonqualified stock options of Eateries, Inc. upon approval of the Compensation Committee of the Board of Directors of the Company.

4. Expenses and Vacation. BURKE shall be entitled to reimbursement for reasonable travel and other out-of-pocket expenses necessarily incurred in the performance of his duties hereunder, upon submission and approval of written statements and bills in accordance with the then regular policies and procedures of the Company. BURKE shall be entitled to a car allowance payable in equal bi-weekly installments of $235.00 commencing January 1, 2001. BURKE shall be entitled to reasonable vacations in accordance with the then regular policies and procedures of the Company governing executives.

5. Representations and Warranties of BURKE. BURKE represents and warrants to the Company that (a) he is under no contractual or other restriction or obligation which is inconsistent with the execution of this Contract, the performance of his duties hereunder, or the other rights of the Company hereunder and (b) he is under no physical or mental disability that would hinder his performance of duties under this Employment Contract.

6. Confidential Information. All trade secrets, or other proprietary or confidential information which BURKE may now possess, may obtain during or after the Term hereof, or may create prior to the end of the period BURKE is employed by the Company under this Contract or otherwise relating to the business of the Company or its affiliates shall not be published, disclosed, or made accessible by him to any other person, firm, or corporation either during or after the termination of his employment or used by him except during the Term hereof in the business and for the benefit of the Company. BURKE shall return all tangible evidence of such trade secrets, or other proprietary or confidential information to the Company prior to or at the termination of his employment. "Trade secrets" shall include, but not be limited to recipes developed or utilized by the Company, as well as methods of operations developed and utilized by the Company.

Additionally, during the Term hereof, BURKE shall not acquire, directly or indirectly, any interest in any restaurants with concepts similar to Company restaurants, unless specifically authorized by the Board or Directors of the Company in writing. Notwithstanding the foregoing, BURKE shall not be prevented from owning any securities of any competitor of the Company which are regularly traded on any national securities exchange or in the over-the-counter market; provided, that the same shall not result in BURKE and his immediate family owning, legally or beneficially, at any time, ten percent (10%) or more of the voting securities of any such company. In the event that the provisions of this section should ever be deemed to exceed the time, geographic or occupational limitations permitted by applicable law, then such provisions shall be reformed to the maximum time, geographic, or occupational limitations permitted by applicable law.

7. Termination. Notwithstanding anything herein contained, if on or after the date hereof and prior to the end of the Term hereof,

(a) either (i) BURKE shall be physically or mentally incapacitated or disabled or otherwise unable fully to discharge his duties hereunder for a period of six (6) months, (ii) BURKE shall be convicted of a felony crime by a court of last resort, (iii) BURKE shall commit any act or omit to take any action in bad faith and to the substantial detriment of the Company, or (iv) BURKE shall breach any term of this Contract and such breach shall directly cause a material adverse impact upon the Company and he shall fail to cure and correct such breach within ten (10) days after notice to BURKE by the Company of the same, or such longer period as may be necessary with due diligence to cure such breach then, and in each case, the Company shall have the right to give notice of termination of BURKE's services hereunder as of a date (not earlier than ten (10) days from such notice in the case of items (ii), (iii) or (iv) and not earlier than six (6) months from such notice in the case of item (i) to be specified in such notice and this Agreement shall terminate on the date so specified; or

(b) BURKE shall die, then this Employment Contract shall terminate on the date of BURKE's death,

Whereupon BURKE or his estate, as the case may be, shall be entitled to receive only his salary at the rate provided in Section 3 to the date on which termination shall take effect. In the event of BURKE's death, his estate or designated beneficiary shall receive, in addition to the foregoing amount, an amount equal to two (2) year's salary payable by the Company upon receipt of the life insurance proceeds of BURKE's key man insurance policy, if any and if not sufficient then within ninety (90) days of BURKE's death.

8. Merger, Et Cetera. In the event of a future disposition of (or including) the properties and business of the Company, substantially as an entirety, by merger, consolidation, sale of assets, or otherwise, then the Company may elect:

(a) To assign this Contract and all of its rights and obligations hereunder to the acquiring of surviving entity; provided that such entity shall be capable of assuming and performing and shall assume in writing and perform all of the obligations of the Company hereunder; provided further that the Company (in the event and so long as it remains in business as an independent going enterprise) shall remain liable for the performance of its obligations hereunder in the event of an unjustified failure of the acquiring entity to perform its obligations under this Contract; and provided finally that the duties assigned BURKE are commensurate with those held prior to the merger and that a relocation of more than 50 miles from the city limits of the City of Oklahoma City, is not required to fulfill such duties; or

(b) In addition to its other rights of termination, to terminate this Contract upon at least sixty (60) days' written notice by paying BURKE two (2) year's salary and car allowance at the rate provided in Section 3 and 4 on the date which such termination shall take effect.

9. Liquidation Damages. The parties hereto covenant and agree that, in the event the Company shall breach the terms of this Employment Contract or the Contract shall terminate under Section 8 (b), it shall pay to BURKE, as liquidated damages for such breach or termination, an amount equal to that which would have been received by him under Section 3(a) and 4 for then remaining Term of this Employment Contract, plus reasonable attorneys' fees, if any. Such amount shall be promptly paid upon a determination of breach or termination, but in no event later than thirty (30) days after such determination.

10. Survival. The covenants, agreements, representation, and warranties contained in or made pursuant to this Employment Contract shall survive BURKE's termination of employment, irrespective of any investigation made by or on behalf of any party.

11. Modification. This Employment Contract sets forth the entire understanding of the parties with respect to the subject matter hereof, and may be modified only by a written instrument duly executed by each party.

12. Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be mailed by certified mail, return receipt requested, or delivered against receipt, to the party to whom it is to be given at the then address of such party (or to such other address as the party shall have furnished in writing). Notice to the estate of BURKE shall be sufficient if addressed to BURKE as provided in this Section 12. Any notice or other communication given by certified mail shall be deemed given at the time of certification thereof, except for a notice changing a party's address which shall be deemed given at the time of receipt thereof.

13. Waiver. Any waiver by either party of a breach of any provision of this Contract shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any provision in this Contract. The failure of a party to insist upon strict adherence to any term of this Contract on one or more occasions shall not be considered a waiver or deprive that party of the right hereafter to insist upon strict adherence to that term or any other term of this Contract. Any waiver must be in writing and signed by the parties.

14. Binding Effect. BURKE's rights and obligations under this Contract shall not be transferable by assignment or otherwise, such rights shall not be subject to commutation, encumbrance, or the claims of BURKE's creditors, and any attempt to do any of the foregoing shall be void. The provisions of this Contract shall be binding upon and inure to the benefit of BURKE and his heirs and personal representatives, and shall be binding upon and inure to the benefit of the Company and its successors and those who are its assigns.

15. No Third Party Beneficiaries. This Employment Contract does not create, and shall not be construed as creating, any rights enforceable by any person not a party to this Employment Contract (except as provided in Section 14).

16. Headings. The headings in this Employment Contract are solely for the convenience of reference and shall be given no effect in the construction or interpretation of this Contract.

17. Counterparts: Governing Law. This Employment Contract may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. It shall be governed by and construed in accordance with the laws of the State of Oklahoma, without given effect to the conflict of laws.

IN WITNESS WHEREOF, the parties have duly executed this Employment Contract as of the date first above written.

"COMPANY"

EATERIES, INC., an Oklahoma corporation

By: /s/                                                 
President

"BURKE"

By:/s/                                                 
JAMES M. BURKE

As approved by a vote of the Compensation Committee of the Board of Directors of Eateries, Inc. on January 10, 2001.

EX-10.3

OPTION AGREEMENT

THIS OPTION AGREEMENT ("Agreement") is made and entered into as of the 1^st day of January 2001, by EATERIES, INC., an Oklahoma corporation (the "Company"), and BRAD GROW ("Awardee"), an Oklahoma resident.

The Company and Awardee agree as follows:

1. Grant of Option.  The Company grants to Awardee options to purchase a total of 210,000 shares of the common stock of the Company (the "Option Shares") the first 60,000 options at an exercise price of $6.00 per share (the "Stock Options") representing the market price on August 14, 1998 and the next 150,000 options at an exercise price of $2.50 the market price on December 31, 2000. The Stock Options are NOT awarded pursuant to the Company's Omnibus Equity Compensation Plan (the "Plan").

2. Present & Future Options. Subject to the terms and conditions stated in this Agreement, the Stock Options shall vest, and Awardee shall have the right to exercise the Stock Options, in varied increments. A (28.57) percent increment (60,000 shares) have vested and became exercisable on June 1, 2000 ("First Increment"); thereafter, an additional (28.57) percent increment (60,000 shares) shall vest and become exercisable on January 2, 2001 (second increment); thereafter, (14.29) percent increments (30,000 shares) shall vest and become exercisable on June 1, 2001, June 1, 2002, and June 1, 2003. If Awardee ceases to be an employee of the Company for any reason prior to the date any or all of the annual installments have vested, the Stock Options shall be forfeited and expire with respect to the unvested portion. Exercise rights shall be cumulative, meaning that any vested but unexercised Stock Options from prior years may be exercised without reducing the rate at which Stock Options vest and become exercisable.

3. Term. The Stock Options shall expire upon the earlier of: (a) expiration prior to vesting as specified by paragraph 2 above; (b) the fifth anniversary of the date on which they first became exercisable; or (c) if the Stock Options were exercisable at the time the Awardee ceased to be an employee of the Company, ninety (90) days after Awardee ceases to be an employee of the Company for any reason unless such cessation of employment shall be caused by Awardee's voluntary termination of employment or the Company's termination of the employment of the Awardee "for cause," in which events the Stock Options shall cease to be exercisable immediately upon termination of employment. As used herein, Awardee shall be terminated "for cause" if Awardee (i) commits a material act of dishonesty, fraud, misrepresentation, or other act of moral turpitude, (ii) is guilty of gross carelessness or misconduct, (iii) has been convicted of a felony crime, (iv) refuses to obey the clear and lawful direction of the Company's President, or (v) acts in a way that has a direct, substantial, and adverse effect on the Company's reputation.

4. Method of Exercise. To exercise the Stock Options, Awardee shall give the Company written notice of the exercise of the options, in substantially the form attached hereto as Exhibit A. Awardee shall pay the appropriate exercise price for the Option Shares at the time of the notice of the exercise of the Stock Options in cash or in such other consideration as the Company's Compensation Committee (the "Committee") determines is consistent with the purpose of this Agreement and applicable law. The Company shall issue or shall have its transfer agent issue one or more certificates for the Option Shares purchased within thirty (30) business days after exercise. The Committee may establish other requirements to provide reasonable procedures for the exercise of the Stock Options.

5. Transferability of Options. Awardee shall not have the right to transfer all or any part of the Stock Options except by will or pursuant to the laws of descent and distribution or to a trust or family partnership for estate planning purposes.

6. Reimbursement for Withholding Liabilities. Subsequent to the granting of the Stock Options to Awardee pursuant to this Agreement, Awardee shall have the obligation to reimburse the Company for any withholding liabilities for Federal, state, and local income taxes, social security taxes, and any other taxes which it may incur as a result of the granting, vesting, and/or exercise of the Stock Options. Awardee shall reimburse the Company for those amounts within thirty (30) days after his receipt of a written accounting of the amounts due. Awardee shall satisfy the tax withholding reimbursement obligation with cash.

7. Transfer Restrictions. Awardee acknowledges that the Stock Options and the underlying common stock have not been registered with state or federal securities agencies. Awardee is acquiring the Stock Options, and will acquire the common stock, for investment and not with a view to the distribution thereof. The Company has not promised to register either the Stock Options or the underlying common stock.

8. Modification. This Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof, supersedes all existing agreements between them concerning such subject matter, and may be modified only by a written instrument duly executed by each party.

9. Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be mailed by certified mail, return receipt requested, or delivered against receipt, to the party to whom it is to be given at the address of such party set forth in the records of the Company (or to such other address as the party shall have furnished in writing). Notice to the estate of Awardee shall be sufficient if addressed to Awardee as provided in this paragraph 9. Any notice or other communication given by certified mail shall be deemed given at the time of certification thereof, except for a notice changing a party's address which shall be deemed given at the time of receipt thereof.

10. Acceleration of Vesting. In the event of a Change in Control prior to June 1, 2003, all of the Awardee's options shall accelerate and vest.

11. Change in Control. For purposes of this Agreement, "Change in Control" shall mean a change in control of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Act"), whether or not the Company is then subject to such reporting requirement; provided that, without limitation, a Change in Control shall be deemed to have occurred if any individual, partnership, firm, corporation, association, trust, unincorporated organization, or other entity, or any syndicate or group deemed to be a person under Section 14(d)(2) of the Act, who is not as of the date of this Agreement the "beneficial owner" (as defined in Rule 13d-3 of the General Rules and Regulations under the Act), directly or indirectly, of securities of the Company representing fifty-one percent (51%) or more of the combined voting power of the Company's then outstanding securities entitled to vote in the election of directors of the Company becomes such a fifty-one percent (51%) beneficial owner.

IN WITNESS WHEREOF, the parties hereto have executed this Option Agreement as of the day and year first set forth above.

COMPANY:

EATERIES, INC.

By:
Vincent F. Orza, Jr., President

AWARDEE:

Bradley L. Grow

EXHIBIT A

NOTICE OF EXERCISE OF STOCK OPTIONS

The undersigned hereby gives notice to Eateries, Inc. (the "Company") of exercise of the stock options issued to him pursuant to the terms of the Stock Option Agreement between the Company and the undersigned, dated as of                           , to purchase            shares of the common stock of the Company. The undersigned has enclosed a check for $           and delivers            shares of the Company's common stock held of record by him and having a fair market value of $           as payment of the purchase price for the shares of common stock.

DATED this            day of                           , 20     .

EX-10.4

LEASE

This Lease is made and entered into this 1 day of May, 1999, by and between Eateries, Inc. "EATS" (together referred to as "Tenant"), and Great Places L.L.C. "GPLLC"., an Oklahoma Limited Liability Company ("Landlord").

WITNESSETH:

In consideration of the mutual covenants and agreements contained in this Lease and the due and faithful performance of each and all the terms, covenants and conditions contained herein, Landlord and Tenant agree as follows:

ARTICLE 1

Leased Premises

Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the building, the parking lot, driveways, and other improvements, more particularly described on attached Exhibit "A," (the "Premises") located at 1220 S. Santa Fe, Edmond, Oklahoma.

ARTICLE 2

Term

(A) Initial Term: This Lease shall be effective on June 1, 1999, the "Rent Commencement Date," and the initial term of this Lease shall extend to the date fifteen years from the Rent commencement Date ("Initial Term"), unless sooner terminated or extended as herein provided. The term "Lease Year" as used herein shall be defined as twelve months beginning on the Rent Commencement Date. Each successive Lease Year shall be that twelve-month period following the end of the first Lease Year.

(B) Option to Extend: As part of the consideration for the execution of this Lease by Tenant, and conditioned upon Tenant having performed all of its obligations hereunder, and provided Tenant is not at the time of exercise of any such option to extend in default hereunder, Landlord hereby grants to Tenant one option to extend the Initial Term for a period of five years, upon the same terms and I I conditions, with rent at the rate as paid in the last year of the initial fifteen year term plus the cumulative CPI increase or $20 per square foot whichever is greater. If Tenant elects to exercise the option to extend this Lease, it shall notify Landlord of its intention in writing not less than six months before the expiration of the Initial Term.  Except as otherwise specifically stated in this Lease, the term of this Lease shall include the Initial Term and any extension, renewal or holdover thereof.

ARTICLE 3

Use

(A) The Premises shall be used only for the purposes of maintaining office space. In connection therewith, Tenant shall be in compliance at all times with all applicable statutes and ordinances.

(B) Tenant shall, during the term of this Lease, operate its business on the Premises with reasonable due diligence and efficiency in a first-class and professional manner; provided, however, that this provision shall not apply if the Premises should be closed and the business of Tenant therein be temporarily shut down on account of strikes, lockouts, acts of God, repairing, cleaning, decorating or remodeling or causes beyond the control of Tenant; and provided, however, that this shall in no way affect Tenant's other obligations under this Lease, including but not limited to the payment of Rent.

ARTICLE

4 Rent

(A) Tenant agrees to pay to Landlord as rental payments "Rent"; $8,900 per month ($106,800 annually) for years one (1) through three (3), $10,383 per month ($124,600 annually) for years four (4) through year six (6), $11,867 per month ($142,400 annually) for years seven (7) through year ten (10), and $13,350 per month ($160,200 annually) or the year one rate increased by the cumulative increase in the CPI, whichever is greater, for years eleven (11) through year fifteen (15) . The monthly rental shall be paid in advance, without demand, on the first day of each calendar month during the term of this Lease prorated on a per diem basis for a fraction of any month. The prorated rent for the first fractional month of the Initial Term shall be paid on the execution of this Lease, if applicable.

As used in this lease, the term "CPI" or "Consumer Price Index" shall mean the average for urban wage earnings and clerical workers, all items, sub-groups, and special groups of items as promulgated by the Bureau of Labor Statistics of the United States Department of Labor, using the year 1999 as a base of 100.

In the event that the Consumer Price Index ceases to incorporate a significant number of items, or if a substantial change is made in the method of establishing the CPI, then the CPI shall be adjusted to the figure that would have resulted had no change occurred in the manner of computing the CPI. In the event that the CPI (or a successor or substitute index) is not available, a reliable governmental or other nonpartisan publication, evaluating the relevant information used in determining the CPI, shall be used in lieu of the CPI.

Where required in this Lease, the cumulative increase in the CPI will be calculated by determining the percentage increase in the CPI during the period of time from the base year of 1999 through the year next previous to the year in which the rental amount is to be calculated.

(B) Tenant and Landlord agree that no security deposit will be required.

(C) All sums of money to be paid Landlord by Tenant under this lease will be considered Rent. Any payment of Rent made more than fifteen days after it is due will earn interest at 15% per annum ("Default Rate").

ARTICLE 5

Indemnity - Insurance by Tenant

(A) Tenant covenants with Landlord that Landlord shall not be liable for any damage or liability of any kind or for any damage or injury to persons or property during the term of this Lease from any cause whatsoever by reason of the use, occupancy and enjoyment of the Premises by Tenant or any person thereon or any person holding under Tenant, and Tenant hereby indemnifies and saves harmless Landlord from all liability whatsoever on account of any such damage or injury and from all liens, claims, and demands arising out of the use of the Premises; provided, however, that Tenant shall not be liable for damage or injury occasioned by reason of the negligent acts or omissions of Landlord, its agents, servants, employees or contractors and Landlord agrees to hold Tenant harmless therefrom, including attorneys fees and costs of defense.

(B) Tenant further covenants and agrees that it will carry and maintain, during the entire term hereof, at Tenant's sole cost and expense, Rent, the following types of insurance, in the amount specified and in the form hereinafter provided for:

(1) Public Liability and Property Damage: During the term of this Lease, Tenant shall procure and maintain in full force and effect, at its sole cost, bodily injury and property damage liability insurance with coverage limits of not less than $2,000,000.00 combined, and $500,000.00 each occurrence, insuring against any and all liability of the insured with respect to the Premises or arising out of the maintenance, use or occupancy thereof. All such bodily injury liability insurance and property damage liability insurance may be provided under umbrella-type policies maintained by Tenant.

(2) Fire and Extended Coverage Insurance: Tenant agrees that it will, during the term hereof, at its sole expense, keep in full force and effect upon the Premises fire insurance with Special Extended Coverage written by a responsible insurance company authorized to do business in the state where the Premises are located in an amount not less than one hundred percent of the replacement cost of the Restaurant, including furniture, fixtures, equipment and any alterations or additions to the Premises whether owned by Tenant or Landlord. All fire and extended coverage insurance which Tenant is obligated to maintain shall be for the benefit of Landlord and Tenant. In the case of loss or damage by fire or other risks insured against, such insurance proceeds shall be paid to and become the property of Landlord, except that Tenant shall be entitled to the replacement cost of Tenant's Property as defined in Article 10 hereof.

(3) Policy Form: All policies of insurance provided for herein shall be issued by insurance companies with general policyholder's rating of not less than A and a financial rating of not less than class XII as rated in the most current available Best's Insurance Reports, and shall be qualified to do business in the state in which the Premises are located. All such policies shall be issued in the name of Tenant and shall name Landlord as an additional insured thereunder, which policies shall be for the mutual and joint benefit and protection of Landlord and Tenant to the extent of their respective interests in the Premises. Certificates of such insurance shall be delivered to Landlord. As often as any such policy shall expire or terminate, renewal or additional policies shall be procured and maintained by Tenant in like manner and to like extent. All policies of insurance shall contain a provision that the company writing said policy will give to Landlord twenty days' notice in writing in advance of any cancellation or lapse or the effective date of any reduction in the amounts of insurance.

(4) Mutual Waiver of Subrogation: Landlord and Tenant, hereby grant to each other, on behalf of any insurer providing fire and all-risk coverage to either of them covering the Premises or contents of the Premises, a mutual waiver of any right of subrogation any such insurer of one party may acquire against the other by virtue of payments of any loss under such insurance, such a waiver to be effective so long as each is empowered to grant such waiver under the terms of its insurance policy or policies involved without payment of additional premium. Each party will notify the other in the event of cancellation of such provision, and such waiver shall stand mutually terminated as of the date either Landlord or Tenant ceases to be so empowered.

ARTICLE 6

Not Used

ARTICLE 7

Taxes

(A) Tenant agrees to pay as Rent during the term of this Lease, before any fine, penalty, interest or cost may be added thereto, or becomes due or is imposed by operation of law for the nonpayment thereof, all taxes, assessments or impositions, license and permit fees and other governmental charges, general or special, ordinary or extraordinary, unforeseen and foreseen, of any kind and nature whatsoever, levied and assessed upon the Premises and personal property therein. Upon request Tenant shall provide Landlord with copies of tax receipts or similar evidence of Tenant's payments thereof or if requested by Landlord, shall deliver to Landlord a check made payable to the taxing authority within seven days after Landlord's request but in no event more than thirty days before such payment is due.

Taxes for the first fractional year of the Lease Term and for the last year of the term hereof shall be prorated between Landlord and Tenant so that Tenant shall be responsible for the payment of only those taxes accruing during the term of this Lease. With respect to any assessments which may be levied against or upon the Premises or which under the laws then in force may be evidenced by improvements or other bonds, or may be paid in annual installments, only the amount of such annual installment (with appropriate proration for any partial year) and statutory interest shall be included within the computation of the annual taxes and assessments levied against the premises.

(B) Nothing herein contained shall require Tenant to pay income taxes assessed against Landlord, or any capital levy, corporation franchise, excess profits, estate, succession, inheritance or transfer taxes of Landlord.

(C) Landlord agrees that Tenant retains the right, at Tenant's sole cost and expense, to contest the legality or validity of any of the taxes, assessments, levies or other public charges to be paid by Tenant which are not being contested by Landlord, and in the event of any such contest, the failure on the part of Tenant to pay any such tax, assessment, levy or charge promptly when the same becomes due and payable shall not constitute a default hereunder, and Tenant upon final determination of such contest, shall immediately pay and discharge any judgment rendered against it, together with all costs and charges incidental thereto.

(D) Tenant shall also pay when due any sales, use, transaction, rent, excise or other taxes levied or imposed upon, or measured by, amounts payable by Tenant to Landlord under this Lease other than income taxes imposed upon Landlord.

ARTICLE 8

Triple-net Lease

This Lease is a "Triple-net Lease" and requires the Tenant to pay or reimburse Landlord, should Landlord advance such costs and expenses, all costs associated with the premises including but not limited to, all utilities, insurance, taxes, and repairs and maintenance as described in Articles 5, 7, and 14 of this Lease respectively.

ARTICLE 9

Changes alterations and Additions/Compliance with Laws

(A) Tenant shall have the right at any time and from time to time during the term of this Lease to make non-structural changes, alterations and additions to the interior of the Premises; provided, however, that Tenant shall make no changes or alterations costing more than $100,000.00 without first obtaining the written consent of Landlord, which consent shall not be unreasonably withheld or delayed, nor shall such changes materially diminish the value of the Premises.

(B) No such change, alteration or addition shall be undertaken or commenced until Tenant shall have procured and paid for all required permits and licenses of all governmental authorities having jurisdiction.

(C) All work done in connection with any change, alteration or addition shall be done with

I reasonable diligence, in good workmanlike manner and in compliance with all applicable laws and regulations of all governmental authorities having jurisdiction. The cost of any such change, alteration or addition shall be paid or discharged by Tenant so that the Premises at all tunes shall be free of any and all liens resulting therefrom, and Tenant's all-risk coverage for the Premises shall be accordingly increased to cover such modifications.

ARTICLE 10

Mechanic's Liens

(A) Tenant shall pay or cause to be paid all costs for work done by it or caused to be done by it on the Premises, and Tenant shall keep the Premises free and clear of all mechanic's liens and other liens due to work done for Tenant or persons claiming under Tenant. Tenant shall indemnify and save Landlord harmless from all liability, loss, damage, costs, attorneys' fees and all other expenses on account of claims of lien of laborers or materialmen or others for work performed or material or supplies furnished for Tenant or persons claiming under Tenant and Landlord shall have a similar obligation to Tenant for work or material furnished to Landlord.

(B) Within thirty days after the filing of any mechanic's lien or claim of lien, Tenant shall either: have discharged the lien from the Premises by payment or by recording a sufficient bond as provided by law, or have purchased and delivered to Landlord a title insurance policy insuring Landlord against the lien. If a final judgment establishing the validity or existence of a claim or lien for any amount is entered, Tenant shall pay and satisfy the same immediately.

(C) If Tenant shall fail to comply with the requirements of subparagraph (B) above, Landlord shall have the right, but not the obligation, to pay the lien or claim of lien, regardless of any dispute over its validity, and the amounts so paid, together with reasonable attorneys' fees and any other costs or expenses incurred in connection with the lien, shall be immediately due and payable from Tenant to Landlord.

(D) Should any lien claims be filed against the Premises or any action affecting the title to the Premises be commenced, the party receiving notice of such lien or action shall forthwith give the other party written notice thereof.

(E) All references herein to "Lien" or "mechanic's lien" shall refer only to a mechanic's lien or claim of lien which states that work has been completed on the Premises and payment has not been forthcoming, and shall not include any statutory notice of record which are for the sole purpose of stating that work has commenced on the Premises.

ARTICLE 11

Signs

Tenant shall be allowed to affix and maintain building signs and free standing monument signs on the Premises as approved from time to time by any requisite governmental agency.

ARTICLE 12

Fixtures and Personal Property

All of Tenant's personal property within the Premises, including furniture, furnishings, and equipment and except property installed or attached to the Premises at Tenant's expense, (collectively "Tenant's Property"), shall remain the property of Tenant, and Tenant shall have the right to remove any and all of Tenant's Property at any time during or upon the termination of the term hereof for purposes of replacement otherwise. Tenant shall maintain adequate equipment to conduct the business permitted in Article 3 and to conform with regulatory requirements concerning equipment. Tenant shall promptly repair any damage occasioned to the Premises by reason of the removal of Tenant's Property. Any of Tenant's property not removed from the Premises before thirty days after the expiration of the initial term will become the property of Landlord, who may dispose of it as Landlord sees fit, but Tenant will pay storage and disposition costs thereof. As required by Landlord, Tenant will remove any fixtures installed by Tenant at the expiration of the partial term as the same may be extended, promptly repairing any damage caused by such removal. All remaining fixtures will become Landlord's property.

ARTICLE 13

Assigning, Mortgaging. Subletting,

(A) Tenant shall not assign, transfer, mortgage, pledge, hypothecate or encumber this Lease or Tenant's interest in and to the Premises or any part thereof or sublet all or any portion of the Premises without first procuring the written consent of Landlord, which consent shall not be unreasonable withheld or delayed, provided that Tenant shall continue to remain liable to Landlord under this Lease. Any attempted transfer, assignment or subletting without the written consent of Landlord shall be void and confer no rights upon any third person.

(B) Each transfer, assignment or subletting to which there has been consent shall be by an instrument in writing in a form and substance satisfactory in Landlord's reasonable judgment. The transferee, assignee or sublessee shall agree in writing for the benefit of Landlord herein to assume, to be bound by and to perform the terms, covenants and conditions of this Lease to be done, kept and performed by Tenant.

(C) Notwithstanding the foregoing, Tenant shall have the right, without Landlord's consent, to assign or transfer this Lease or sublet the Premises or any part thereof to a successor corporation of Tenant, to any corporation into which or with which Tenant merges or consolidates, or to any parent, subsidiary or affiliated corporation, including any corporation which controls or is under the control of Tenant, or to any franchisee of Tenant or of any corporation affiliated with Tenant; provided that any such assignee or subtenant shall deliver to Landlord a copy of a document satisfactory in Landlord's reasonable judgment under which such assignee or subtenant agrees to assume and perform all of the terms and conditions of this Lease on Tenant's part to be performed from and after the effective date of the assignment or sublease, and further provided that Tenant shall guarantee the financial performance of the assignee under this Lease.

ARTICLE 14

Repairs and Maintenance

(A) Subject to the provisions of Article 15, Tenant shall at its own cost and expense, as Rent, keep and maintain the Premises, including the parking area and all grounds surrounding the building on the Premises in good and sanitary order, condition and repair, and make all necessary repairs and replacements to the Premises, including the parking areas and such grounds, including but not limited to roof, pipes, heating, air conditioning and ventilation systems, plumbing system, windowglass, windows, ceilings, interior walls, floors, skylights, doors, cabinets, draperies, carpeting and other floorcoverings, electrical wiring, light fixtures and switches and all other fixtures and all the appliances and appurtenances and all landscaping, lawn maintenance and watering systems belonging thereto. All maintenance, repairs, and replacements shall be done in a first-class manner at least equal in quality to the original work. In the event Tenant shall default in performing maintenance, repairs or replacements, Landlord may (but shall not be so required) perform such maintenance, repairs or replacements for Tenant's account, and the expenses thereof shall constitute and be immediately due and payable as additional rent.

Landlord shall not be obligated to make any repairs, replacements, alterations, additions or improvements in or to the Premises or grounds of the Premises except for any damage caused by the negligence of Landlord or its agents, servants, employees or contractors. Tenant may, after having given thirty days prior written notice to Landlord, repair any such damage caused by the negligence of Landlord or its agents, servants, employees or contractors and deduct such costs from the next payment of rent due hereunder, so long as Landlord is not diligently pursuing such repair.

ARTICLE 15

Reconstruction

(A) In the event the Premises shall be destroyed by fire or any other perils, Tenant shall:

1.  Within a period of sixty days thereafter, commence repair, reconstruction and restoration of the Premises and prosecute the same diligently to complete in accordance with plans prepared by Tenant and approved by Landlord, which approval shall not be unreasonable withheld or delayed, in which event this Lease shall continue in full force and effect and for such purpose Landlord shall make available to Tenant the proceeds of all insurance received by Landlord with respect to such destruction, or

2.  In the event more than 33 1/3 percent of the then replacement value of the Premises is destroyed within the last three years of the Initial Term or during the last three years of any extended term, either Landlord or Tenant (provided it is not then in default hereunder) may at its option elect to terminate this Lease by giving written notice of such termination to the other parry within thirty days after such destruction, in which event this Lease shall terminate upon the giving of such notice, and all insurance proceeds attributable to the Premises (except for that portion attributable to Tenant's Property) shall be payable to Landlord and neither party shall thereafter have any further rights or obligations hereunder.

(B) Upon any termination of this Lease under any of the provisions of this Article, the parties shall be released thereby without further obligations to the other parry coincident with the surrender of possession of the Premises to Landlord except for items which have theretofore accrued and remain unpaid.

ARTICLE 16

Bankruptcy - Insolvency

Tenant agrees that in the event all or substantially all of Tenant's assets are placed in the hands of a receiver or trustee, and such receivership or trusteeship continues for period of ninety days, or should Tenant make an assignment for the benefit of creditors or be finally adjudicated a bankrupt, or should Tenant institute any proceedings under the Bankruptcy Code as the same now exists or under any amendment thereof which may hereafter be enacted, or under any other act relating to the subject of bankruptcy wherein Tenant seeks to be adjudicated a bankrupt, or to be discharged of its debt, or to effect a plan of liquidation, composition or reorganization, or should any involuntary proceeding not be removed within one hundred twenty days thereafter, then this Lease or any interest in and to the Premises shall not become an asset in any and all rights or remedies of Landlord hereunder or by law provided, it shall be lawful for Landlord to declare the term hereof ended and to reenter the Premises and take possession thereof and remove all persons therefrom, and Tenant shall have no further claim thereon or hereunder.

ARTICLE 17

Defaults/Remedies

Tenant's Default; Landlord's Remedies and Lien

(A) Tenant's Default. This Lease is made upon the condition that Tenant shall punctually and faithfully perform all of the covenants, conditions and agreements to be performed by Tenant as set forth in this Lease. The following shall each be deemed to be an event of default (an "Event of Default"):

    (a) The failure of Tenant to pay the Rent, or any installment thereof, if such failure continues for ten (10) days after such payment is due, without the necessity of Landlord giving Tenant notice of any such failure, which notice Tenant hereby waives:

    (b) Repetition or continuation of any failure to timely pay any Rent, where such failure shall continue or be repeated for two (2) consecutive months, or more than four (4) times in any period of twelve (12) consecutive months (As used in this subsection (b) "timely" shall mean when due, without regard to any grace period as provided in subsection (a) above);

    (c) The failure of Tenant to observe or perform any of the covenants, terms or conditions set forth in Article 13 relating to assignments, mortgaging, and subletting) or when such failure continues for a period of fifteen (15)' days, without the necessity of Landlord giving Tenant notice of any such failure, which notice Tenant hereby waives;

    (d) The failure of Tenant to observe or perform any other covenant, term or condition set forth in this Lease when said failure continues for a period of fifteen (15) days after written notice thereof from Landlord to Tenant, or if such failure cannot reasonably be cured within fifteen (15) days, when said failure continues for a period of sixty (60) days after written notice thereof from Landlord to Tenant provided that Tenant commences to cure said failure within such fifteen (15) day period and continues diligently to pursue the curing of the same until completed.

    (e) The commencement of levy, execution, attachment or other process of law upon, on or against the estate created in Tenant hereby; the appointment of a liquidator, receiver, custodian, sequestrator, conservator, examiner, trustee or other similar officer for Tenant, and the continuation of such appointment for a period of thirty (30) days, or the insolvency of Tenant or any assignment by Tenant for the benefit of creditors;

    (f) The commencement of a case by or against Tenant under any insolvency, bankruptcy, creditor adjustment or debtor rehabilitation laws, whether state or federal, or the determination by Tenant to request relief under any insolvency proceeding, including any insolvency bankruptcy, creditor adjustment or debtor rehabilitation laws, whether state or federal. Such commencement or determination by Tenant shall terminate the estate created in Tenant hereby and neither this Lease nor the premises shall become as asset in any such proceeding;

    (g) Tenant's failure to pay when due and payable, all taxes, assessments and government charges imposed upon it or which it is required to withhold and pay over, without the necessity of Landlord giving Tenant notice of any such failure, which notice Tenant hereby waives;

    (h) The enactment of any rent control law or ordinance which requires reductions in any Rent payable hereunder or which prohibits, or reduces the amount of, any increase of Rent provided for in this Lease; and

    (i) The repetition of any failure to observe or perform any one or more of the covenants, terms or conditions hereof (whether or not any such failure is specified in subsections (a) through (i) above) more than four (4) times, in the aggregate, in any period of twelve (12) consecutive months, without regard to any required notice and/or grace period which may be provided herein. Notwithstanding the foregoing, Landlord shall not be required to give Tenant any notice or period to cure any failure or other circumstance described above before exercising Landlord's remedies hereunder if Landlord in good faith reasonable believes that emergency action is necessary to prevent loss of or injury to persons or property or to prevent the incurrence of a cost or expense which Landlord reasonable believes Tenant will be unable or unwilling to pay. In such event Landlord may exercise such remedies and take such other action as it deems reasonable appropriate and shall promptly thereafter give Tenant notice thereof. 

(B) No Waiver; Remedies.  Landlord's failure to insist upon strict performance of any covenant, term or condition of this Lease or to exercise any right or remedy shall not be deemed (i ) a waiver of any default or breach hereunder so long as the same shall continue to exist, or (ii) a waiver or relinquishment for the future of such performance, right or remedy. Upon an Event of Default above, have the following remedies in addition to all other rights and remedies specified elsewhere in this Lease and which may now or hereafter provided by law or equity, to which Landlord may resort cumulatively, successively or in the alternative:

Landlord may decline to retake possession of the Leased Premises and may sue for the Rent as such Rent becomes due or sue for the present value of the Rent to accrue under this Lease and other damages or remedies to which Landlord may be entitled.

Landlord may elect to retake possession of the Leased Premises and, without initially reletting the Leased Premises, sue for damages in an amount equal to the present value of the Rent to accrue under this Lease and other damages or remedies to which Landlord may be entitled.

Landlord may retake possession of the Premises, relet the Premises and sue for damages. During the period of time that Landlord is trying to relet the Premises, Tenant will be liable for damages in an amount equal to the full Rent. Landlord may sue from time to time for the rent and/or damages which accrue under this Lease, or may sue for the present value of the total rent and /or damages which will be due or which may be sustained throughout the remaining term in accordance with the measure of damages set forth below. The election to sue either periodically or for the total amount shall be at the sole option and discretion of Landlord. In any action brought by Landlord to recover rent and/or damages, Tenant waives to the fullest extent permitted by law any applicable statute of limitations.

Landlord may elect to seek declaratory relief, specific performance and/or injunctive relief (prohibitive or mandatory) with respect to any covenant, term or condition set forth in this Lease.

Landlord may terminate this Lease, re-enter the Property and take possession thereof, remove all persons and property therefrom, and sue for damages, in which event Tenant shall have no further claim or right hereunder.

( C ) Provisions Regarding Landlord's Remedies. The following provisions shall apply with respect to Landlord's remedies:

Landlord's re-entry or taking of possession of the Leased Premises shall not be construed as an election to terminate this Lease unless Landlord gives written notice of such termination. Notwithstanding any reletting without termination, Landlord may, at any time after a reletting and subject to the provisions herein, elect to deem this Lease terminated for any then uncured default. Any re-entry or taking of possession by Landlord shall not affect or diminish the ongoing obligation or liability of Tenant for all Rent and other obligations due and owing under this Lease. Re-entry by the Landlord will not obligate the Landlord to mitigate damages by reletting, unless otherwise provided by applicable law. Wherever in this Lease Landlord has reserved or is granted the right of re-entry into the Premises, the use of such word is not intended, nor shall it be construed to be limited to its technical legal meaning.

If Landlord re-enters, it may take possession of the Premises, remove all persons and property from the Premises and store such property at Tenant's expense or resort to legal process without being deemed guilty of trespass or becoming liable for any loss or damage occasioned thereby. Tenant agrees that if Landlord stores such property, Landlord shall have a lien thereon pursuant to 42 Okla. Stat. 91.

Landlord may relet the Premises or any part thereof for such term or terms (which may extend beyond the Term), and at such rentals and upon such other terms and conditions as Landlord in its sole discretion deems advisable and such reletting shall not in any way relieve Tenant from the obligations and liabilities under this Lease. Any and all amounts received upon such reletting and all rentals received by Landlord therefrom shall be applied first to any indebtedness owed by Tenant to Landlord other than Rend due hereunder, then to pay any cost and expense of reletting, including brokers' and attorneys' fees and costs of alterations and repairs, then to the Rend due hereunder. If there is any residue, it shall be applied ( i ) to any other damage incurred by Landlord as a result of Tenant's default, or (ii) if this Lease is not terminated, to any deficiencies between the rentals received and the Rent that may become due hereunder. In such latter event, any funds due Tenant shall be paid at the expiration of the Term. It is understood that said funds shall not draw interest while held by Landlord as security for Tenant's obligations hereunder.

To the extent permitted by law, Tenant waives any right of redemption, re-entry or repossession and any defense of merger.

Landlord may pursue one or more remedies against Tenant and need not elect its remedy until such time as findings of fact have been made by a judge or jury, whichever is applicable, in a trial court of competent jurisdiction.

The covenant to pay Rent and other amounts hereunder and to perform all obligations hereunder are independent covenants from the other terms and provisions of this Lease and Tenant shall have no right to hold back, offset or fail to pay any such amounts for any alleged default by Landlord or for any other reason whatsoever.

After any default under this Lease, Landlord may accept any partial payment of the sums then due under this Lease without prejudice to its rights to collect the balance of the sums then due and without prejudice to any other right or remedy Landlord may have.

(D) Damages Upon Termination. If Landlord elects to terminate this Lease, Landlord may recover from Tenant the following damages, in addition to its other remedies:

    (i) Any unpaid Rent which has been earned as of the time of such termination, including interest thereon at the Default Rate; plus

    (ii) The amount by which any unpaid Rent which would have been earned after termination through the date of judgment exceeds the greater of (A) the amount of rent that Tenant proves could have been reasonable obtained by Landlord upon a reletting of the Leased Premises for such period, or (B) the amount of rent actually received by Landlord for such period, together with interest thereon at the Default Rate; plus

    (iii) The amount by which the Rent which would have accrued for the balance of the Term after the date of judgment exceeds the amount of rent that tenant proves could be reasonably obtained by Landlord for such period, reduced to present value at the Default Rate; plus

    (iv) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom including, without limitation, the cost of repairing the Premises, the cost of reletting the Premises (including, without limitation, the cost of remodeling and brokers' fees), and reasonable attorneys' fees; plus

    (v) At Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable state law. Damages shall be due and payable from the date of termination.

(E) Landlord's Self-Help. In addition to Landlord's rights of self-help set forth elsewhere in this Lease, if Tenant at any time fails to perform any of its obligations under this Lease in a manner reasonable satisfactory to Landlord, Landlord shall have the right, but not the obligation, upon giving Tenant at least three (3) days' prior notice of its election to do so (but in the event of any emergency, no prior notice shall be required), to perform such obligations on behalf of and for the account of Tenant and to take all such action to perform such obligations. In such event, Tenant shall reimburse Landlord on demand the costs and expenses incurred by Landlord in connection therewith as additional Rent, with interest thereon from the dates) such costs and expenses are incurred until paid at the Default Rate. The performance by Landlord of any such obligation shall not constitute a waiver of any default by Tenant or a release of Tenant therefrom.

(F) Landlord's Agents. In exercising any rights hereunder or taking any actions provided for herein, Landlord may act through its employees, agents or independent contractors as authorized by Lender.

(G) Landlord's Lien. Tenant hereby grants to Landlord a lien and security interest on all property of Tenant now or hereafter placed in or upon Premises including, but not limited to, all fixtures, machinery, equipment, furnishings and other articles of personal property now or hereafter placed in or upon the Leased Premises by or on behalf of Tenant, and all proceeds of the sale or other disposition of such property (collectively, the "Collateral") and such property shall be and remain subject to such lien and security interest of Landlord to secure the payment of all Rent and other sums agreed to be paid by Tenant herein. Said lien and security interest shall be in addition to and cumulative of any Landlord's lien provided by law. This Lease shall constitute a security agreement under the Oklahoma Uniform Commercial Code (the "UCC") so that Landlord shall have and may enforce a security interest in the Collateral. Tenant agrees to execute as debtor such financing statements and continuation statements and any further documents as Landlord may now or hereafter reasonably request in order that such security interest(s) may be and remain perfected pursuant to the UCC. Landlord may at its election at any time file a copy of this Lease as a financing statement. Landlord, as secured party, shall be entitled to all of the rights and remedies afforded a secured parry under the UCC, which rights and remedies shall be in addition to and cumulative of any Landlord's liens and rights provided by law or by the other terms and provisions of this Lease.

ARTICLE 18

Condemnation

If any portion of the Premises is taken by appropriation for public use under right of eminent domain, or if a voluntary conveyance is made to the condemning authority in lieu of eminent domain proceedings, Landlord and Tenant agree that their respective rights shall be governed as follows:

(A) In the event that a taking occurs which, in the reasonable judgment of Landlord does not substantially impair Tenant's use of the Premises, Landlord shall be entitled to retain the entire proceeds from the eminent domain proceeding (except for any portion attributable to Tenant's Property as defined in Article 12 hereof or damage to or interruption of Tenant's business), but it shall be obligated to repair or restore the Premises required by any alteration or damage resulting from such taking, and Rent will not abate.

(B) In the event a taking occurs which, in the reasonable judgment of Landlord substantially impairs Tenant's use of the Premises, Tenant shall have the right to terminate this Lease upon thirty days notice to Landlord but notice shall be given no later than the date title vests in the condemning authority.

In no event shall Tenant have any claim against Landlord for any portion of the award paid by the condemning authority, whether for the fee or the leasehold, as a result of such taking or conveyance under threat of condemnation, and Tenant does hereby assign to Landlord all of Tenant's right, title and interest in and to any and all amounts so paid or awarded except for any award made specifically to Tenant by the condemning authority for loss or interruption of Tenant's business or Tenant's Property as defined in Article 12 hereof or for the cost of moving all of the same, or for the unamortized cost of Tenant's leasehold improvements paid for by Tenant and depreciated on a straight-line basis over the term of this Lease.

ARTICLE 19

Quiet Enjoyment - Covenants

Tenant, upon payment of all rent and observing and keeping all the covenants, agreements and conditions of this Lease on its part to be kept, shall quietly have and enjoy the Premises during the term of this Lease, without hindrance or molestation by anyone claiming by, from, through or under Landlord, subject and subordinate, however, to the exceptions, reservations and conditions of this Lease.

ARTICLE 20

Notices and Payment of Rent

Whenever in this Lease it shall be required or permitted that notice or demand be given or served by either parry to this Lease to or on the other parry, such notice or demand shall be given or served by personal delivery or by certified or registered mail, return receipt requested, postage prepaid, addressed as follows:

TO LANDLORD: 

Great Places, L.L.C.
2001 Cambridge Way
Edmond, Oklahoma 73013

WITH COPY TO: 

Max C. Tuepker, Esq.
204 N. Robinson, 25'h Floor
Oklahoma City, Oklahoma 73102

TO TENANT: 

Eateries, Inc.
1220 S. Santa Fe
Edmond, Oklahoma

WITH COPY TO: 

Tom Golden
Hall, Estill, Gable, Golden & Nelson
320 S. Boston Avenue, Suite 400
Tulsa, Oklahoma 74103-3708

Every notice, demand, request or communication hereunder which is given by personal delivery shall be deemed given as of the date and time of such personal delivery, and every notice, demand, request or communication hereunder sent by mail in the manner described above shall be deemed to have been given or served upon mailing. All rent and other payments shall be either delivered or sent by first-class mail and paid by Tenant to Landlord at the address above provided. Either party may change its address by giving written notice to the other parties in the manner described in this Article.

ARTICLE 21

Obligations of Successors

The parties hereto agree that all the provisions hereof are to be construed as covenants and agreements as though the words importing such covenants and agreements were used in each separate paragraph hereof, and that all of the provisions hereof shall bind and inure to the benefits of the parties hereto and their respective legal representatives, successors and assigns.

ARTICLE 22

Force Majeure

Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, inability to obtain labor or materials or reasonable substitutes therefor, governmental restrictions, governmental regulations, governmental controls, judicial orders, enemy or hostile governmental action, civil commotion, fire or other casualty, and other causes beyond the reasonable control of the party obligated to perform, shall excuse the performance by such parry for a period equal to any such prevention, delay or stoppage, except the obligations imposed with regard to Minimum Annual Rental and other charges to be paid by Tenant pursuant to this Lease. It is expressly agreed that any other time limit provision contained in this Lease shall be extended for the same period of time lost by causes hereinabove set forth.

ARTICLE 23

Holding Over

It is hereby agreed that in the event of Tenant holding over after termination of this Lease with the consent of Landlord, the tenancy thereafter shall be from month to month in the absence of a written agreement to the contrary, and such month-to-month tenancy shall be terminable on thirty days written notice given by either Landlord or Tenant. During such month-to-month tenancy, Tenant shall pay to Landlord rent equal to 110 percent of the monthly payment of Minimum Annual Rental paid in the previous lease year.

ARTICLE 24

Estoppel Certificates / Subordination / Non-Disturbance

At any time and from time to time, Landlord on at least seven days prior notice by tenant, and Tenant, on at least seven days prior request by landlord, will deliver to the party making such request a statement in writing certifying that this Lease is unmodified and in full force and effect (or if there shall have been modifications, that the same is in full force and effect as modified and stating the modifications), any other statements typically found in such estoppel certificates which Landlord or Tenant may reasonably request and the date to which the rent and any other deposits or charges have been paid and stating whether or not to the best knowledge of the party executing such certificate, the party requesting such statement is in default in the performance of nay covenant, agreement or condition contained in this Lease and, if so, specifying each such default of which the executing party may ha This Lease Agreement shall be subordinate to any mortgage or other hypothecation for security now or in the future placed on the real property of which the Premises are a part, and to all advances made on such security, and on all renewals, modifications, consolidations, replacements, and extensions of such mortgage or other hypothecation. In spite of such subordination, Tenant's right to quiet possession of the Premises shall not be disturbed if Tenant is not in default and so long as Tenant shall pay the rent and observe and perform all of the provisions of this Lease Agreement, unless this Lease Agreement is otherwise terminated pursuant to its terms.

Tenant also agrees to execute any documents required to effectuate such subordination, and failure to do so within ten (10) days after written demand, does make, constitute, and irrevocably appoint Landlord as Tenant's attorney-in-fact, and in Tenant's name, place, and stead, to do so.

Upon a foreclosure of any mortgage or execution of any deed in lieu of foreclosure, or declaration of Landlord's default under any hypothecation for security and demand by Landlord's successor, Tenant shall attorn to and recognize such successor as Landlord under this Lease Agreement.

ARTICLE 25

Memorandum of Lease

Landlord and Tenant agree that this Lease shall not be recorded but that a Memorandum of Lease describing the Premises and stating the term of this Lease, Tenant's rights of renewal and the addresses of Landlord and Tenant may be executed if desired by either parry, and the same may thereafter be recorded by either Landlord or Tenant. The form of Memorandum is attached hereto as Exhibit "B".

ARTICLE 26

Representations and Warranties

The Landlord makes no representations or warranties regarding the condition and/or fitness for a particular use of the Premises or personal property located on the Premises. Tenant has inspected the Premises and such personal property, and accepts the Premises and all such property in "as is condition." Tenant further agrees to make whatever improvements or alterations at it's own expense to the Premises that would be required to operate in compliance with all Federal and state regulatory requirements. Landlord makes no representations or warranties concerning the ADA or any environmental issues.

ARTICLE 27

Waiver

No waiver of any condition or any legal right or remedy shall be implied by the failure to declare a forfeiture or for any other reason, and no waiver of any condition or covenant shall be valid unless it is in writing and signed by the waiving party. No waiver by either parry of any covenant or condition herein shall constitute a waiver of any further breach or continuance of the same condition or covenant or any other condition or covenant.

ARTICLE 28

Not Used

ARTICLE 29

Not Used

IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease on the day and year first above written.

LANDLORD:

GREAT PLACES, L.L.C.
660: James Burke, Managing Member

TENANT:

EATERIES, INC.
By:_______________________
Vincent F. Orza, Jr. President

State of Oklahoma            )
                                        ) ss:
County of Oklahoma         )

This instrument was acknowledged before me on May 1, 1999, by James Burke, as Managing Member of GREAT PLACES, L.L.C., an Oklahoma limited liability company, on behalf of said limited liability company, as Landlord.

Notary Public

My Commission Expires:

Seal

State of Oklahoma            )
                                        )ss:
County of Oklahoma        )

This instrument was acknowledged before me on May 1, 1999, by Vincent F. Orza, Jr., as President of EATERIES, INC., an Oklahoma corporation, on behalf of said corporation, as Tenant.

Notary Public

My Commission. Expires:

Seal

EX-10.6

STANDARD FORM

GARFIELD'S RESTAURANT & PUB

FRANCHISE AGREEMENT

between

Eateries, Inc.

and

_________________________

(Franchisee Name)

FOR

_________________________

(Restaurant Location)

FRANCHISE AGREEMENT

TABLE OF CONTENTS

Page

ARTICLE I FRANCHISE GRANT; TERM AND RENEWAL 1

1.1 Franchise Grant. *

1.2 Initial Term. *

1.3 Renewal. *

1.3.1 *

1.3.2 *

1.3.3 *

1.3.4 *

1.3.5 *

1.3.6 *

ARTICLE II FRANCHISE AND ADVERTISING FEES *

2.1 Franchise Fees. *

2.1.1 Initial Fee. *

2.1.2 Continuing Royalty Fee. *

2.2 Advertising Fees. *

2.3 Form of Payment. *

ARTICLE III DUTIES OF FRANCHISOR *

3.1 Assist Franchisee. *

3.2 Training. *

3.2.1 *

3.2.2 *

3.3 Informational Material. *

3.4 Plans and Specifications. *

3.5 Promotional Material. *

3.6 Garfield's Operations Manual. *

3.7 Quarterly Inspections. *

3.8 No Third Party Reliance. *

ARTICLE IV DUTIES OF FRANCHISEE *

4.1 Attendance at Training Programs. *

4.2 Lease of Premises. *

4.2.1 *

4.2.2 *

4.2.3 *

4.2.4 *

4.2.5 *

4.2.6 *

4.3 Construction of Restaurant. *

4.3.1 *

4.3.2 *

4.3.3 *

4.3.4 *

4.4 Use of Premises. *

4.5 Maintenance of Restaurant. *

4.6 Improvements and Modifications *

4.7 Remodeling of Restaurant. *

4.8 Operation of Restaurant. *

4.8.1 *

4.8.2 *

4.8.3 *

4.8.4 *

4.8.5 *

4.8.6 *

4.8.7 *

4.8.8 *

4.8.9 *

4.9 Purchase of Ingredients, Supplies, and Materials. *

4.9.1 *

4.9.2 *

4.9.3 *

4.9.4 *

4.9.5 *

4.9.6 *

4.9.7 *

4.10 Right to Set-Off. *

4.11 Right to Enter. *

4.12 Accounting and Records. *

4.12.1 Maintenance of Records. *

4.12.2 Financial Reports. *

4.12.3 Other Reports. *

4.12.4 Recordation. *

4.12.5 Examinations. *

4.13 Liquor License. *

4.14 No Waiver. *

ARTICLE V PROPRIETARY MARKS *

5.1 Representations of Franchisor. *

5.1.1 *

5.1.2 *

5.1.3 *

5.2 Agreement of Franchisee. *

5.2.1 *

5.2.2 *

5.2.3 *

5.2.4 *

5.2.5 *

5.2.6 *

5.2.7 *

5.2.8 *

5.2.9 *

5.2.10 *

5.3 Acknowledgments of Franchisee. *

5.3.1 *

5.3.2 *

5.3.3 *

5.3.4 *

5.3.5 *

ARTICLE VI CONFIDENTIAL OPERATIONS *

6.1 Compliance with Manual Standards. *

6.2 Confidentiality of Manual. *

6.3 Property of Franchisor. *

6.4 Maintenance of Manual at Restaurants. *

ARTICLE VII CONFIDENTIAL INFORMATION *

7.1 Proprietary Information. *

7.1.1 *

7.1.2 *

7.1.3 *

7.2 Injunctive Relief. *

7.3 Investments in Publicly Traded Companies. *

7.4 Reforming Provisions. *

7.5 Confidentiality Agreements. *

ARTICLE VIII USE OF NAME; ADVERTISING *

8.1 Advertising Under Trade Name. *

8.2 National Advertising and Marketing Program. *

8.2.1 *

8.2.2 *

8.2.3 *

8.2.4 *

8.2.5 *

8.3 Local Advertising. *

8.4 Cooperative Advertising Campaigns. *

8.5 Opening Promotions. *

8.6 Prior Approval of Franchisor. *

ARTICLE IX INSURANCE *

9.1 Procurement of Policies. *

9.2 Coverage and Amounts. *

9.3 Additional Coverage. *

9.4 Obligation Not Limited. *

9.5 Evidence of Insurance. *

9.6 Authority of Franchisor to Procure Insurance. *

ARTICLE X TRANSFERS OF INTEREST *

10.1 Transfer by Franchisor. *

10.2 Transfer by Franchisee. *

10.2.1 Conditions on Transfer. *

10.2.2 Consent. *

10.2.3 No Security Interest. *

10.3 Right of First Refusal. *

10.3.1 Right. *

10.3.2 Consideration. *

10.4 Transfer Upon Death or Mental Incompetency. *

10.5 Non-Waiver of Claims. *

10.6 Permitted Assignments. *

ARTICLE XI DEFAULT AND TERMINATION *

11.1 Termination by Franchisor Without Notice. *

11.2 Termination by Franchisor with Notice. *

11.2.1 *

11.2.2 *

11.2.3 *

11.2.4 *

11.2.5 *

11.2.6 *

11.2.7 *

11.2.8 *

11.3 Termination by Franchisor with Notice and Opportunity to Cure. *

11.4 Termination by Franchisee. *

ARTICLE XII OBLIGATIONS UPON TERMINATION OR EXPIRATION *

12.1 General Obligations. *

12.1.1 *

12.1.2 *

12.1.3 *

12.1.4 *

12.1.5 *

12.1.6 *

12.1.7 *

12.1.8 *

12.1.9 *

12.1.10 *

12.1.11 *

12.2 Obligations Upon Termination by Franchisee. *

12.3 Refund of Initial Fee Upon Termination. *

ARTICLE XIII AGREEMENTS *

13.1 Best Efforts. *

13.2 Franchisee and Principal Shareholders Agreement

Not to Compete. *

13.3 Franchisor Agreement Not to Compete. *

13.3.1 *

13.3.2 *

13.3.3 *

13.4 Interference with Employment Relations. *

13.5 Reduction of Scope of Agreement. *

13.6 Reforming Provisions. *

ARTICLE XIV TAXES, PERMITS AND INDEBTEDNESS *

14.1 Prompt Payment of Taxes. *

14.2 Bona Fide Dispute. *

14.3 Compliance with Laws. *

14.4 Notification of Legal Proceedings. *

ARTICLE XV FRANCHISEE ORGANIZATION, AUTHORITY,

AND FINANCIAL CONDITION *

15.1 Entity Representations & Warranties. *

15.2 Covenants. *

15.3 Financial Statements. *

15.4 Ownership. *

15.5 Guarantees. *

ARTICLE XVI RELATIONSHIP AND INDEMNIFICATION *

16.1 Relationship. *

16.2 Indemnification. *

ARTICLE XVII GENERAL PROVISIONS *

17.1 Request for Approval. *

17.2 No Liability Assumed. *

17.3 No Waiver. *

17.4 Notices. *

17.5 Entire Agreement. *

17.6 Severability and Construction. *

17.6.1 *

17.6.2 *

17.6.3 *

17.6.4 *

17.6.5 *

17.6.6 *

17.7 Remedies. *

17.8 Force Majeure. *

17.9 Applicable Law. *

17.10 Final and Binding Arbitration. *

17.11 Injunctive Relief; Venue. *

17.12 Legal Fees. *

17.13 Acknowledgments. *

17.13.1 *

17.13.2 *

17.13.3 *

17.13.4 *

SCHEDULE A *

SCHEDULE 15.4 *

SCHEDULE 17.4 *

APPENDIX A *

APPENDIX B AUTHORIZATION AGREEMENT FOR PRE-ARRANGED PAYMENTS *

GARFIELD'S RESTAURANT & PUB
FRANCHISE AGREEMENT

THIS FRANCHISE AGREEMENT (this "Agreement") made and entered into as of this ____ day of ____________, ______ (the "Effective Date"), by and between EATERIES, INC., an Oklahoma corporation ("Franchisor "); ____________________, a ___________________ corporation ("Franchisee"); and ________________________ (collectively the "Principal Shareholders" and individually, a "Principal Shareholder" of Franchisee):

WHEREAS, Franchisor is the owner of certain service marks and trademarks relating to "Garfield's Restaurant & Pub" restaurants, in particular the two federally registered marks "Garfield's" (Registration No. 1,539,694) and "Casey Garfield's" (Registration No. 1,543,014) (the "Proprietary Marks"); and

WHEREAS, Franchisor is engaged in the business of owning, operating and licensing or franchising restaurant/bars utilizing the Proprietary Marks (collectively, the "System"); and, in connection therewith, using and licensing or franchising the use of the Proprietary Marks; and

WHEREAS, Franchisor owns valuable goodwill connected with the System and has formulated and developed methods, trade secrets, designs, processes, technical and operational information, know- how, and other intellectual property relating to the operation and implementation of "Garfield's Restaurant & Pub" (the "Concept"); and

WHEREAS, Franchisor, Franchisee and the Principal Shareholders have entered into a Development Agreement dated ___________, ______ ("Development Agreement"), relating to the development by Franchisee of additional franchises for Garfield's Restaurant & Pub restaurants and/or other franchises offered by Franchisor; within the "Territory" as defined therein; and

WHEREAS, Franchisee desires to be franchised to operate "Garfield's Restaurant & Pub" pursuant to the provisions hereof and the Development Agreement, and at the location of the Restaurant as specified on Schedule A hereof, and Franchisee acknowledges that it has had a full and adequate opportunity to be thoroughly advised of the terms and conditions of this Agreement, and to have its legal counsel review this Agreement.

NOW, THEREFORE, in consideration of the undertakings, commitments and mutual covenants contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, covenant and agree as follows:

ARTICLE I
FRANCHISE GRANT; TERM AND RENEWAL

1.1 Franchise Grant.

Subject to the terms and conditions of this Agreement, Franchisor hereby grants to Franchisee, and Franchisee accepts, the right and license to construct, open and operate a "Garfield's Restaurant & Pub" (the "Restaurant") at the location defined in Schedule A, in accordance with the Concept, as it may be changed, improved and further developed from time to time, and the Proprietary Marks and such other trade secrets, marks and know-how as may be designated from time to time. Franchisee shall have no right under this Agreement to license or grant franchises to others. During the term of this Agreement until its expiration or earlier termination, Franchisor shall not establish a restaurant utilizing the mark "Garfield's Restaurant & Pub" or the Proprietary Marks or license another franchisee to establish such a restaurant, at any location, other than airports, state and federally owned properties, and sports complexes, within the lesser of (i) a three mile radius of the Restaurant or (ii) a radius from the Restaurant which includes a daytime or residential population of 40,000 or more people. Notwithstanding the foregoing, Franchisor may establish a restaurant or may license a restaurant to a third party within the geographic area set forth in the preceding sentence, provided that such restaurant does not utilize the System or the service mark "Garfield's Restaurant & Pub" or the Proprietary Marks. The area consisting of the lesser of (i) or (ii) above is hereinafter referred to as the "Protected Territory").

1.2 Initial Term.

Except as otherwise provided in this Agreement, the initial term of this Agreement shall be for a period of twenty years from the date of execution of this Agreement.

1.3 Renewal

. Franchisee may, at its option, renew the right and license to operate its Restaurant for four additional five-year periods; provided, however, that prior to the end of the applicable term:

1.3.1

Franchisee has given Franchisor written notice of its election to renew not less than twelve months nor more than eighteen months prior to the end of the initial term and each five-year renewal term, as applicable; and Franchisee has made or provided for renovation of the premises of the Restaurant (the "Premises"), as Franchisor may reasonably require, including, without limitation, upgrading of equipment, renovation and modernization of the restaurant building, the premises, signs, fixtures and equipment so as to reflect the then-current design, decor, specifications and standards of the System and the Concept;

1.3.2

Franchisee and the Principal Shareholders are not in default of any provision of this Agreement, any amendment hereof or successor hereto, or any other agreement between Franchisee, Franchisor and the Principal Shareholders, or their subsidiaries and affiliates, and have substantially complied with all of the terms and conditions of such agreements and have exercised all prior renewals during the term and renewal term(s) hereof;

1.3.3

Franchisee and the Principal Shareholders have satisfied all monetary obligations owed by Franchisee to Franchisor and its subsidiaries and affiliates and have timely met these obligations throughout the term of this Agreement; and Franchisee shall present satisfactory evidence that Franchisee has the right to remain in possession of the Premises for the renewal term, or has obtained Franchisor's approval of a new location for the Restaurant;

1.3.4

Franchisee and the Principal Shareholders have executed Franchisor's then-current form of franchise agreement (with appropriate modifications to reflect the granting of a renewal) for the renewal term described in this Section 1. 3, which agreement shall supersede this Agreement in all respects, and the terms of which may differ from the terms of this Agreement, including, without limitation, a higher Continuing Royalty Fee as defined below in subsection 2.1.2;

1.3.5

Franchisee and the Principal Shareholders have executed a general release, in a form prescribed by Franchisor, of any and all claims against Franchisor and its subsidiaries and affiliates, and their respective officers, directors, agents and employees; and

1.3.6

Franchisee has complied with Franchisor's then-current qualification and training requirements.

ARTICLE II
FRANCHISE AND ADVERTISING FEES

2.1 Franchise Fees.

Franchisee shall pay Franchisor the following franchise fees:

2.1.1 Initial Fee.

Upon execution of this Agreement or earlier if required by the Development Agreement, Franchisee shall pay Franchisor a nonrefundable, initial fee of Thirty Thousand Dollars ($30,000) for the Restaurant (the "Initial Fee"). Franchisee shall be given credit towards the Initial Fee for any amounts paid as a Franchise Fee Deposit and/or application fee as allocable to the Restaurant pursuant to the Development Agreement.

2.1.2 Continuing Royalty Fee.

Commencing with the opening of the Restaurant for business to the public, Franchisee shall pay to Franchisor, without set-off, credit, or deduction of any kind, a monthly "Continuing Royalty Fee" of the greater of $3,000.00 per month or 4% of the monthly Gross Receipts (as defined herein) of the Restaurant (prorated during any partial month), due and payable ten business days after month end. The term "Gross Receipts" shall mean the total of all sales of food products, beverages and other merchandise and products to customers of Franchisee, sold at, from and by reason of the Restaurant, including without limitation all vending machines, video game machines and juke box sales, less sales, use or service taxes collected and paid to the appropriate taxing authority and customer refunds made in the ordinary course of business.

2.2 Advertising Fees.

Franchisee shall pay Franchisor the monthly and/or quarterly advertising fees as Franchisor may require pursuant to Article VIII hereof.

2.3 Form of Payment.

The Initial Fee shall be paid by Franchisee or the Principal Shareholders to Franchisor by electronic or wire transfer in U.S. Dollars. All other payments required by this Article II shall be paid by means of an Electronic Depository Transfer Account ("Electronic Depository Transfer Account") pursuant to that certain Authorization Agreement for Pre-Arranged Payments in the form attached hereto as Appendix B, which shall be executed by Franchisee simultaneously with the execution of this Agreement. Immediately following the execution of this Agreement, Franchisee shall set up an Electronic Depository Transfer Account, and Franchisor shall have access to such account for the purpose of receiving payment for any payments required under this Agreement and any other amounts which Franchisee owes to Franchisor (with the exception of the Initial Fee). At least twenty-four hours prior to the date any applicable payment is owed to Franchisor by Franchisee under this Agreement, Franchisee shall make deposits to the Electronic Depository Transfer Account in an amount sufficient to cover the applicable payments owed to Franchisor hereunder. Deposits for any other amounts owned to Franchisor shall be in accordance with the procedures set forth in the Manual.

Any payment not actually received by Franchisor on or before the date due shall be deemed overdue. If any such payment is overdue, Franchisee shall pay Franchisor, in addition to the overdue amount, interest on such amount from the due date until paid at the rate of 18% per annum, provided that the rate shall not in any event exceed the maximum rate permitted by law. Entitlement to such interest shall be in addition to any other remedies Franchisor may have or possess.

ARTICLE III
DUTIES OF FRANCHISOR

3.1 Assist Franchisee.

Franchisor shall assist Franchisee in establishing and maintaining the Restaurant and in familiarizing Franchisee with the proper operation of the Restaurant.

3.2 Training.

3.2.1

Franchisor shall provide, at a location designated by Franchisor, training for Franchisee and/or Franchisee's general manager and all other managers for the Restaurant. The training program will commence at least ten weeks prior to opening of the Restaurant, and will last for eight weeks. The training program syllabus shall be as described in the Garfield's Operations Manual (the "Manual"). Transportation, room and board, compensation and any other expense incurred by Franchisee and its managers in connection with attending the training school will be borne solely by Franchisee. Franchisor will bear the costs relating to its instructors, the training materials and administrative overhead.

3.2.2

Franchisor shall provide to Franchisee during the opening of the Restaurant a kitchen trainer, floor trainer, manager and supervisor. The kitchen trainer will be available for up to four weeks, and all others will be available for up to two weeks. Longer periods are negotiable. Franchisee will bear the expense of transportation, room and board, visas, work permits and local fees and income taxes of such persons. Franchisor will bear the expense of their compensation.

3.3 Informational Material.

Franchisor shall provide Franchisee with such periodic newsletters, bulletins and additional informational material as Franchisor deems advisable. Such additional information will include new recipes and menu items to be added to, or substituted for, recipes and menu items previously furnished to Franchisee.

3.4 Plans and Specifications.

Franchisor shall make available at no charge to Franchisee a preliminary floor plan and design elements for the construction of a typical franchised restaurant and for the exterior and interior design and layout, fixtures, furnishings, and signs. Franchisee will obtain architectural and engineering services independently and at its own expense. Franchisee shall advise Franchisor of, and be responsible for, architectural plans and specifications for the Restaurant, as well as any alterations to the preliminary floor plan and design elements and specifications that may be required to comply with local laws. Franchisor shall have the right to review all such architectural and/or engineering plans which Franchisee obtains and to prohibit the implementation of a plan, or part thereof, which Franchisor, in its sole and absolute discretion, believes is not consistent with the best interests of the System. In the event that Franchisor desires to prohibit the implementation of such plan, or part thereof, Franchisor shall so notify Franchisee within thirty business days of receiving such architectural and/or engineering plans for review. Failure of Franchisor to so notify Franchisee within such thirty business day period shall be deemed to be an approval of such plans. In the event Franchisor does object to any such plan, Franchisor shall provide Franchisee with a reasonable detailed list of changes necessary to make such plans acceptable to Franchisor. Franchisor shall, upon Franchisee's resubmission of such plans with such changes as Franchisee has prepared, notify Franchisee within fifteen business days of receiving such plans whether they are acceptable. Failure to so notify Franchisee within such fifteen business day period shall be deemed to be an approval of such amended plans.

3.5 Promotional Material.

Franchisor shall make available from time to time promotional materials for in store marketing by Franchisee for which Franchisee shall pay the reasonable value thereof, if used. Franchisor must review and approve all advertising and promotional material which Franchisee proposes to use.

3.6 Garfield's Operations Manual.

Franchisor shall loan Franchisee one copy of Franchisor's Manual for use at the Restaurant, subject to the conditions set forth in Article VI hereof. The use of additional copies shall be controlled by Franchisor at fees set by it.

3.7 Quarterly Inspections.

Franchisor seeks to maintain the standards of quality, professionalism, appearance and service of the System and the Concept, and to that end may conduct each calendar quarter an inspection of the Premises and such other periodic inspections as may be desirable, subject to two days prior notice to Franchisee. The cost of such quarterly inspections will be borne by Franchisor; provided, to the extent that Franchisee requests the assistance of Franchisor personnel at times other than the regular quarterly inspections, costs incurred by Franchisor in furnishing such personnel and assistance will be borne by Franchisee.

3.8 No Third Party Reliance.

All of the obligations of Franchisor arising under this Agreement are to Franchisee, and no other party is entitled to rely upon, enforce, or obtain relief for any breach thereof, either directly or by subrogation.

ARTICLE IV
DUTIES OF FRANCHISEE

4.1 Attendance at Training Programs.

Franchisee, the Principal Shareholders and Franchisee's general manager and all other managers must attend training sessions conducted by Franchisor, until, in the judgment of Franchisor, they are sufficiently trained in Franchisor's operating requirements and procedures, including the Concept. The operation and manner of conducting such training school shall be in the manner determined by Franchisor. Transportation, room and board, compensation and any other expense incurred by Franchisee and its managers in connection with attending the training school will be borne solely by Franchisee. Franchisor will bear the costs relating to its instructors, the training materials and administrative overhead.

4.2 Lease of Premises.

In the event Franchisee will occupy the Premises under a lease, sublease, or other contract of tenancy with a third party (the "Lease"), Franchisee shall, at least thirty days prior to the execution of the Lease, submit the Lease in the English language to Franchisor for its written approval, which Lease shall be for a term at least as long as the initial term of this Agreement and shall include such terms and conditions as Franchisor may reasonably request to protect its interest in the Restaurant, the System and the Concept including, without limitation, the following provisos:

4.2.1

A provision reserving to Franchisor the right, at Franchisor's election, to receive an assignment of the leasehold interest upon termination or expiration of the franchise grant;

4.2.2

A provision that expressly permits the lessor of the Premises to provide Franchisor all sales and other information it may have related to the operation of the Restaurant, as Franchisor may request;

4.2.3

A provision that requires the lessor of the Premises concurrently to provide Franchisor with a copy of any written notice of deficiency under the Lease sent to Franchisee and that grants to Franchisor, in its sole discretion and sole option, the right (but not the duty) to cure any deficiency under the Lease, should Franchisee fail to do so within fifteen days after the expiration of the period in which Franchisee may cure the default;

4.2.4

A provision that evidences the right of Franchisee to display the Proprietary Marks in accordance with the specifications required by the Manual, subject only to the provisions of applicable law;

4.2.5

A provision that the Premises shall be used only for the operation of the Restaurant; and

4.2.6

A provision that expressly states that any default under the Lease shall constitute a default under the Franchise Agreement, and a provision that Franchisor shall have the option to require an assignment of the Lease of the Premises from Franchisee to Franchisor, without the lessor of the Lease having any right to impose conditions on such an assignment or to obtain any payment in connection therewith in the event of any default or termination of Franchisee under the Franchise Agreement or Development Agreement or the termination of any such agreement.

Franchisee shall furnish Franchisor with a fully executed copy of the Lease within ten days after execution of the Lease.

4.3 Construction of Restaurant.

Prior to the commencement of any construction (including leasehold improvements) on the Premises, Franchisee, at its expense, shall comply, to Franchisor's satisfaction, with all of the following requirements:

4.3.1

Franchisee shall employ a qualified architect, or construction consultant, approved in advance by Franchisor, to review and adapt plans and specifications provided by Franchisor for construction of the Restaurant on the Premises;

4.3.2

Franchisee shall submit to Franchisor, for Franchisor's approval, detailed plans and specifications adapting Franchisor's then-current standard floor plans and design elements and specifications to Franchisee's location and to local and state laws, regulations and ordinances. When approved by Franchisor, such plans and specifications shall not thereafter be materially changed or modified without the prior written consent of Franchisor;

4.3.3

Franchisee shall employ a qualified general contractor, approved in advance by Franchisor, to supervise construction of the building on the Premises, including completion of all improvements; and

4.3.4

Franchisee shall obtain all permits and certifications required for lawful construction and operation of the Restaurant, including, without limitation, zoning, access, sign and fire requirements, and provide to Franchisor such evidence as Franchisor may reasonably request that all such permits and certifications have been obtained.

4.4 Use of Premises.

Franchisee shall use the Premises solely for the operation of the Restaurant; shall keep the Restaurant open and in normal operation for such minimum hours and days as Franchisor may from time to time specify in the Manual or as Franchisor may otherwise approve in writing; and shall refrain from using or permitting the use of the Premises for any other purpose or activity at any time without first obtaining the written consent of Franchisor.

4.5 Maintenance of Restaurant.

Franchisee shall maintain the Restaurant in a high degree of sanitation, repair and condition, and in connection therewith shall make such additions, alterations, repairs and replacements thereto (but no others without Franchisor's prior written consent) as may be required for that purpose.

4.6 Improvements and Modifications

. Franchisee agrees that from time to time Franchisor may change or modify the System and/or the Concept, including without limitation changes in the kinds or preparations of foods or beverages offered for sale, improvements or alterations in the decor of the Restaurant, or modifications in the operating procedures or requirements of the Restaurant. Franchisee shall accept such changes and modifications, as if they were part of this Agreement at the time of its execution, and shall promptly undertake and complete the changes and modifications; provided that Franchisee need not accept a Material Change as defined herein unless such change is or will be made throughout the System. A "Material Change" as defined herein is an improvement or modification that requires out-of-pocket expenditures by Franchisee in excess of $5,000. Franchisee shall not change, modify or alter in any way the System or the Concept.

4.7 Remodeling of Restaurant.

In order to assure the continued success of the Restaurant, Franchisee shall, any time from time to time after five years from the date of this Agreement as reasonably required by Franchisor (taking into consideration the cost and then-remaining term of this Agreement), modernize the Premises, equipment, signs, interior and exterior decor items, fixtures, furnishings, supplies and other products and materials required for the operation of the Restaurant to Franchisor's then-current design, decor, specifications and standards of the Concept; provided that, at the time Franchisor requires Franchisee to so modernize the Premise at least 25% of Franchisor-owned and operated restaurants meet such standards and specifications. Franchisee's obligations under this section are in addition to, and shall not relieve Franchisee from, any of its other obligations under this Agreement, including those contained in the Manual.

4.8 Operation of Restaurant.

Franchisee shall operate the Restaurant in strict conformity with such uniform methods, standards and specifications as Franchisor may from time to time prescribe in the Manual to insure that the highest degree of quality, timeliness and service is uniformly maintained. Franchisee agrees:

4.8.1

To maintain in sufficient supply and use at all times, only such food, beverages, furnishings, supplies, menus, fixtures and equipment as conform with Franchisor's standards and specifications, and to refrain from deviating therefrom by using nonconforming items without Franchisor's prior written consent;

4.8.2

To sell or offer for sale only such food, beverages and other products as have been expressly approved for sale in writing by Franchisor; to sell or offer for sale all approved food, beverages and other products; and to discontinue selling and offering for sale any food, beverages and other products as Franchisor may, in its discretion, disapprove in writing at any time. With respect to the offer and sale by Franchisee of all food, beverages and other products, Franchisee shall have sole discretion as to the prices to be charged to its customers and as to product brands conforming to Franchisor's standards and specifications. Franchisee shall honor any gift certificates issued pursuant to a System-wide gift certificate program;

4.8.3

To insure that the approved food products sold by Franchisee hereunder shall be of the highest quality, and the method of preparing and serving and the nature, quality, ingredients and composition of the food products sold hereunder shall comply with the instructions and recipes provided by Franchisor or contained in the Manual, and with the further written requirements of Franchisor as Franchisee may be advised from time to time. All recipes and requirements shall remain the property of Franchisor and shall be returned to it by Franchisee upon the expiration, termination or assignment by Franchisee of this Agreement; provided, Franchisee may, from time to time, request Franchisor to amend its instructions, recipes and requirements, which requests, upon a demonstration of good cause and a determination that such amendment would not conflict with, or cause damage or injury to, the Concept or the System, shall be approved by Franchisor;

4.8.4

To permit Franchisor or its agents, at any reasonable time, to remove from Franchisee's inventory, or from the Restaurant, at Franchisor's option, samples of items without payment therefor, in amounts reasonably necessary for testing by Franchisor or an independent laboratory to determine whether said samples meet Franchisor's then current standards and specifications. In addition to any other remedies it may have under this Agreement, Franchisor may require Franchisee to bear the cost of such testing if the supplier of the items has not previously been approved by Franchisor or if the sample fails to conform to Franchisor's specifications;

4.8.5

To purchase and install, at Franchisee's expense, all fixtures, furnishings, signs and equipment as Franchisor may reasonably direct from time to time in the Manual or otherwise in writing; and to refrain from installing or permitting to be installed on or about the Premises, without Franchisor's prior written consent, any equipment or other improvements not previously approved as meeting Franchisor's standards and specifications; provided, the purchase and installation of any such fixtures, furnishings, signs and equipment shall be subject to, and in compliance with, the terms of all local laws and the Lease, if any, for the Premises;

4.8.6

To maintain all equipment in a condition that meets operational standards specified in the Manual and, as equipment becomes obsolete or inoperable, to replace such equipment with the types and kinds of equipment as are then approved for use in the System. Franchisee shall also purchase and install new equipment within such reasonable times as are specified by Franchisor in the event Franchisor determines that Franchisee needs additional or substitute equipment to operate under the Concept;

4.8.7

To establish and utilize a point-of-sale system, including without limitation the acceptance of credit cards, that is compatible with a system specified by Eateries, as may change from time to time, and in accordance with the procedures of Franchisor and as contained in the Manual, as amended from time to time;

4.8.8

The Restaurant shall at all times be under the direct, on-premises supervision of Franchisee, a Principal Shareholder or a trained and competent employee acting as full-time manager. Within six months from the Effective Date, Franchisee shall notify Franchisor in writing of the person(s) selected to be manager(s) of the Restaurant. Thereafter, Franchisee shall keep Franchisor informed at all times of the identity of any employee(s) acting as manager(s) of the Restaurant. Franchisee and the Principal Shareholders agree that they will at all times faithfully, honestly and diligently perform their obligations hereunder and that they will not engage in any business or other activities that will conflict with their obligations hereunder; and

4.8.9

To employ the minimum number of employees, and to implement a training program for such employees, as may be prescribed by Franchisor, and to comply with all applicable federal, state and local laws, rules and regulations with respect to such employees.

4.9 Purchase of Ingredients, Supplies, and Materials.

Franchisee agrees that:

4.9.1

Franchisee shall purchase all food supplies and ingredients used in the composition of all menu items and other approved auxiliary products from approved suppliers which are in conformity with Franchisor's standards, as the same may be modified from time to time. Franchisor shall notify Franchisee of approved suppliers in its market area. If Franchisee desires to purchase food supplies, ingredients or auxiliary products from other than approved suppliers, Franchisee shall submit a written request for the same to Franchisor. If Franchisor determines that such proposed supplier or auxiliary products meet the quality standards of Franchisor, then Franchisor shall so notify Franchisee, and in such event Franchisee may then purchase food supplies and ingredients from such approved supplier, or purchase such auxiliary products. In the event Franchisor does not disapprove such request within forty-five days after receipt, such request shall be deemed to have been approved. Upon request, Franchisor shall furnish Franchisee with a list of any contracts entered into by Franchisor with national or regional suppliers used in the restaurant operations;

4.9.2

Franchisee agrees to comply with and honor any and all rebate and/or purchasing programs that Franchisor establishes for the System. Franchisor shall use commercially reasonable efforts to negotiate with suppliers for the lowest possible price for food and beverages for all franchisees in the System. In conjunction with such efforts, if Franchisor agrees to a rebate program with a supplier, all such rebates will be payable to Franchisor who shall distribute to Franchisee its pro-rata share of its rebates, less a 15% handling charge.

4.9.3

The parties hereto agree that Franchisor's method of cooking and preparing its food is a highly confidential trade secret and that because of the importance of quality and uniformity of product, it is to the mutual benefit of both parties hereto that Franchisor closely control the method of cooking and preparing such food;

4.9.4

Franchisee may purchase from Franchisor or its subsidiaries, upon such terms as Franchisor shall determine, such items and supplies as Franchisor offers for sale to its Franchisees;

4.9.5

Franchisee shall require all of its employees to dress in conformity with the styles that have been approved by Franchisor;

4.9.6

Franchisee shall make all payments to third parties, when due for obligations resulting from or incurred in the operation, or by virtue of the existence of the Restaurant, whether for services, goods, supplies, rent or otherwise; and

4.9.7

Franchisor, in its sole discretion, shall have the right to make, on behalf of Franchisee, any payment specified in this Agreement or the Lease of the Premises, or due and owed by Franchisee to any third party and which Franchisee shall have failed to pay when due, whether directly or through Franchisee. Franchisor shall bill Franchisee for any amount so paid by Franchisor, together with a delinquency charge of 18% per annum, provided that the rate of interest shall not in any event exceed the maximum rate permitted by law. Imposition of any such delinquency charge shall not constitute a waiver of the right of Franchisor to treat said failure of payment by Franchisee as a default under this Agreement or any other agreement, or to seek other available legal remedies.

4.10 Right to Set-Off.

In the event that any of the obligations owing under this Agreement shall be due and payable, yet remain unpaid for thirty days or more, Franchisor is hereby authorized by Franchisee at any time and from time to time, without prior notice, any such notice being expressly waived, to set off and appropriate and apply any funds held or owing by Franchisor (in any capacity) to or for the credit or the account of Franchisee against and on account of obligations and liabilities of Franchisee under this Agreement and claims of every nature and description of Franchisor against Franchisee, whether arising under this Agreement or otherwise, regardless of whether Franchisor has made demand for payment, and although such obligations, liabilities or claims are contingent or unmatured. Franchisor agrees to notify Franchisee of any such set-off and the application made by Franchisor, provided that the failure to give notice shall not affect the validity of the set-off and application. The right of set-off provided by this section is in addition to other rights and remedies that Franchisor may have.

4.11 Right to Enter.

Franchisee shall grant Franchisor and its agents the right to enter upon the Premises at any reasonable time for the purpose of conducting inspections; cooperate with Franchisor's representatives in such inspections by rendering such assistance as they may reasonably request; and, upon notice from Franchisor or its agents, and without limiting Franchisor's other rights under this Agreement, take such steps as may be necessary immediately to correct the deficiencies detected during any such inspection, including, without limitation, immediately desisting from the further use of any food, beverages, equipment, advertising materials, products or supplies that do not conform with Franchisor's then-current specifications, standards or requirements.

4.12 Accounting and Records.

4.12.1 Maintenance of Records.

Franchisee shall maintain and preserve, during the term of this Agreement, full, complete, and accurate books, records and accounts in accordance with the standard accounting system prescribed by Franchisor in the Manual or otherwise in writing. Franchisee shall retain during the term of this Agreement and for three years thereafter all books and records related to the Restaurant, including without limitation, sales checks, purchase orders, invoices, payroll records, customer lists, check stubs, sales and all other tax records and returns, cash receipts and disbursement journals, and general ledgers. [CHECKING WITH TAX ATTORNEY ON THIS ONE.]

4.12.2 Financial Reports.

In the form and manner as may be required by the Manual, Franchisee shall submit financial reports to Franchisor as required by this Section 4.12. Franchisee shall complete and submit to Franchisor weekly reports of the Gross Receipts for the Restaurant on or before 11:00 a.m. central time on the Monday following the calendar week to which the report relates. Franchisee shall also supply to Franchisor on or before the tenth day of each month an activity report for the last preceding month for the Restaurant, including without limitation, a report of the Restaurant's Gross Receipts for such month. Additionally, Franchisee shall, at its expense, submit to Franchisor the following financial statements for the Restaurant: (i) within thirty days of the end of each calendar quarter during the term of this Agreement, a profit and loss statement for the preceding quarter and a balance sheet as of the last day of the preceding quarter and (ii) no later than seventy-five days after the Franchisee's fiscal period during the term of this Agreement, a profit and loss statement for the prior fiscal period and a balance sheet as of the last day of such fiscal period, prepared on an accrual basis including all adjustments necessary for fair presentation of the financial statements. All such financial statements shall be prepared in accordance with generally accepted accounting principles and shall be certified to be true and correct by Franchisee. Franchisor reserves the right to require annual financial statements reviewed or audited by an independent certified public accountant chosen by Franchisee and acceptable to Franchisor; such review or audit shall be at the expense of Franchisee. Franchisor also reserves the right to require that all financial statements be prepared in accordance with specimen forms provided to Franchisee by Franchisor.

4.12.3 Other Reports.

Franchisee shall submit to Franchisor such other periodic reports, forms and records as specified, and in the manner and at the time as specified in the Manual or otherwise in writing.

4.12.4 Recordation.

Franchisee shall record all sales on point of sale systems approved by Franchisor or on such other types of point of sale systems as may be designated by Franchisor in the Manual or otherwise in writing. Franchisee agrees that Franchisor shall have the right to require Franchisee to utilize point-of-sale systems that are fully compatible with any program or system which Franchisor, in its discretion, may employ. Franchisor shall have full access to all of Franchisee's data, system and related information by means of direct access, whether in person or by telephone/modem.

4.12.5 Examinations.

Franchisor or its designated agents shall have the right at all reasonable times to examine and copy, at its expense, the books, records and tax returns of Franchisee. Franchisor shall also have the right, at any time, to have an independent audit made of the books of Franchisee at Franchisor's expense. If an inspection should reveal that any payments to Franchisor have been understated in any report to Franchisor, then Franchisee shall immediately pay to Franchisor the amount understated upon demand, in addition to interest from the date such amount was due until paid, at 18% per annum, provided that the rate of interest shall not exceed the maximum rate permitted by law. If an inspection discloses an understatement in any report of 2% or more, Franchisee shall, in addition, reimburse Franchisor for any and all costs and expenses connected with the inspection (including, without limitation, reasonable accounting and attorneys' fees). The foregoing remedies shall be in addition to any other remedies Franchisor may have.

4.13 Liquor License.

The grant of the rights which are the subject of this Agreement is expressly conditioned upon the ability of Franchisee to obtain and maintain any and all required state and/or local licenses permitting the sale of liquor by the drink on the Premises, and Franchisee agrees to use its best efforts to obtain such licenses. In the event Franchisee fails, after a good faith effort, to obtain any and all such required liquor licenses prior to or simultaneous with the opening of the Restaurant, then, at the option of Franchisor, this Agreement may be terminated immediately by Franchisor upon written notice to Franchisee, in which event, Franchisor shall refund to Franchisee, without interest, the Initial Fee, less (i) any application fees and/or franchise fee deposit allocated to the Initial Fee and (ii) any expenses incurred and damages sustained by Franchisor in connection with its performance hereunder prior to the date of such termination. After obtaining the necessary state and/or local liquor licenses, Franchisee shall thereafter comply with all applicable laws and regulations relating to the sale of liquor on the Premises. If, during any twelve-month period during the term of this Agreement, Franchisee is prohibited for any reason from selling liquor on the Premises for more than thirty days because of a violation or violations of state or local liquor laws, then, at the option of Franchisor, this Agreement may be terminated immediately by Franchisor upon written notice to Franchisee.

4.14 No Waiver.

Franchisee and the Principal Shareholders acknowledge that nothing contained herein constitutes Franchisor's agreement to accept any payments after same are due or a commitment by Franchisor to extend credit to or otherwise finance Franchisee's operation of the Restaurant. Further, Franchisee and the Principal Shareholders acknowledge that Franchisee's or the Principal Shareholders' failure to pay all amounts when due shall constitute grounds for termination of this Agreement, as herein provided.

ARTICLE V
PROPRIETARY MARKS

5.1 Representations of Franchisor.

Franchisor represents with respect to the Proprietary Marks that:

5.1.1

Franchisor has the full and exclusive right to the use of the Proprietary Marks, within the Protected Territory for restaurant and bar services and will take all reasonable steps to preserve and protect its ownership and validity in and to the Proprietary Marks in the Protected Territory;

5.1.2

Franchisor will use and permit Franchisee and other franchisees of Franchisor to use the Proprietary Marks only in accordance with the Concept in order to protect the goodwill associated with and symbolized by the Proprietary Marks; and

5.1.3

In the event that Franchisee is precluded from operating the Restaurant within the Protected Territory because Franchisor determines that a third person has acquired rights under the law of any state in such mark, which so precludes Franchisee, Franchisor agrees to assist Franchisee, at Franchisee's request, in locating an alternative site for the Restaurant. In the event that an alternative site cannot be located within ninety days of Franchisee's request, Franchisor shall repay the Initial Fee to Franchisee. Franchisee and the Principal Shareholders agree that the remedies set forth in this subsection and in Subsection 5.2.5 below, shall constitute their sole remedies against Franchisor in such event.

5.2 Agreement of Franchisee.

With respect to Franchisee's use of the Proprietary Marks pursuant to this Agreement, Franchisee agrees that:

5.2.1

Franchisee shall use only the Proprietary Marks designated by Franchisor and only in the manner authorized and permitted by Franchisor. Franchisee shall use the Proprietary Marks only in connection with the operation of the Restaurant;

5.2.2

During the term of this Agreement, Franchisee shall identify itself as the owner of the Restaurant in conjunction with any use of the Proprietary Marks, including, but not limited to, on invoices, order forms, receipts and contracts, as well as at such conspicuous locations on the Premises as Franchisor shall designate in writing. Any identification which specifies Franchisee's name shall be followed by the term "A Franchisee of Garfield's Restaurant & Pub" or such other identification as shall be approved by Franchisor, if used in connection with the Restaurant;

5.2.3

Franchisee's right to use the Proprietary Marks is limited to such uses as are authorized under this Agreement, and any unauthorized use thereof shall constitute an infringement of Franchisor's rights in the Proprietary Marks or otherwise;

5.2.4

Franchisee shall not use the Proprietary Marks to incur any obligation or indebtedness on behalf of Franchisor;

5.2.5

In the event that litigation involving the Proprietary Marks is instituted or threatened against Franchisee, Franchisee shall promptly notify Franchisor and shall cooperate fully in defending or settling such litigation. Franchisee agrees that Franchisor, upon notification to Franchisee, may elect to assume control over, and responsibility for, any litigation instituted against Franchisee involving the Proprietary Marks. In the event of any such litigation, Franchisor shall bear all costs of such litigation and should Franchisee be found liable for damages or penalties in connection with any such litigation, Franchisor shall indemnify and hold Franchisee harmless from such damages or penalties to the extent such actions or omissions for which Franchisee was held liable were conducted or performed in good faith and not in a manner negligently or recklessly giving rise to such liability. Furthermore, Franchisee shall execute any documents deemed necessary by Franchisor or its counsel to obtain protection for the Proprietary Marks or to maintain their continued validity and enforceability. Should Franchisee be forced to remove, replace or alter any signs, menus, advertising, paper goods or other items by reason of litigation in connection with the Proprietary Marks, Franchisor agrees to reimburse Franchisee for the reasonable costs of such removal, replacement or alteration;

5.2.6

Franchisee shall require all advertising and promotional materials, signs, decorations, paper goods (including forms, business cards, labels, boxes, envelopes and stationery), and other items designated by Franchisor to bear the Proprietary Marks in the form, color, location and manner required by Franchisor;

5.2.7

No item of merchandise, equipment, supplies, furnishings or utensils bearing the Proprietary Marks shall be used or sold in, upon, or on behalf of the Restaurant unless the same shall have been first submitted to and approved in writing by Franchisor as meeting Franchisor's existing standards of quality and utility;

5.2.8

Any Proprietary Marks subsequently provided to Franchisee for use within the Concept or the System shall enjoy the same protection as the Proprietary Marks herein used;

5.2.9

Franchisor is party to an agreement with United Feature Syndicate, Inc. ("UFS"), the trademark owner of the GARFIELD THE CAT cartoon strip characters. This agreement delineates the respective rights of Franchisor and UFS in the name GARFIELD. Under such agreement, Franchisor has agreed that neither Franchisor nor its franchisees will make any use of the GARFIELD THE CAT character or other characters from that comic strip in connection with the restaurant and/or bar services rendered by Franchisor and its franchisees. Franchisee and the Principal Shareholders acknowledge their understanding that such prior agreement between Franchisor and UFS is binding upon Franchisee and the Principal Shareholders, and Franchisee and the Principal Shareholders agree to comply with the restrictions contained in such agreement; particularly the restriction prohibiting usage by franchisees of Franchisor of the GARFIELD THE CAT character or any other characters from that comic strip in connection with any franchised restaurant of Franchisor; and

5.2.10

Franchisee shall not use any of the Proprietary Marks as part of an electronic mail address, or on any sites on the Internet or World Wide Web and shall not use or register any of the Proprietary Marks as a domain name on the Internet.

5.3 Acknowledgments of Franchisee.

Franchisee expressly understands and acknowledges that:

5.3.1

Franchisor has the exclusive right and interest in and to the Proprietary Marks and the goodwill associated with and symbolized by the Proprietary Marks, and the Proprietary Marks will serve to identify the Concept and those restaurants within the System;

5.3.2

Franchisee shall not directly or indirectly contest or conflict with the validity of Franchisor's ownership of the Proprietary Marks. Franchisee's use of the Proprietary Marks pursuant to this Agreement does not give Franchisee any ownership interest or other interest in or to the Proprietary Marks, except the franchise granted herein;

5.3.3

Any and all goodwill arising from Franchisee's use of the Proprietary Marks in the Restaurant under the Concept shall inure solely and exclusively to Franchisor's benefit, and upon expiration or termination of this Agreement and the franchise herein granted, no monetary amount shall be assigned as attributable to any goodwill associated with Franchisee's use of the Concept or the Proprietary Marks;

5.3.4

The right and license of the Proprietary Marks granted hereunder to Franchisee is nonexclusive (with the exception of Franchisee's rights in the Protected Territory), and Franchisor thus has and retains the rights among others:

(i) To grant additional franchises for Proprietary Marks, and to use the Proprietary Marks in connection with selling food and other products;

(ii) To develop and establish other systems for the same Proprietary Marks or similar proprietary marks, and grant licenses or franchises thereto without providing any rights therein to Franchisee; and

5.3.5

Franchisor reserves the right to substitute different Proprietary Marks for use in identifying the Concept, the System and the business operating thereunder, if Franchisor can no longer use, license or franchise the use of the Proprietary Marks.

ARTICLE VI
CONFIDENTIAL OPERATIONS

6.1 Compliance with Manual Standards.

In order to protect the reputation and goodwill of Franchisor and to maintain uniform standards of operation, Franchisee shall conduct its business in accordance with the Manual. Franchisee will receive on loan from Franchisor one copy of the Manual for the Restaurant. Franchisee shall return to Franchisor the Manual and any other manuals created or approved for use in the operation of the Restaurant, as well as any unauthorized copies of the foregoing materials, upon termination of this Agreement.

6.2 Confidentiality of Manual.

Franchisee shall at all times treat the Manual, any other manuals created or approved for use in the operation of the Restaurant, and the information contained therein, as confidential, and shall use all reasonable efforts to maintain such information as secret and confidential. Franchisee shall not at any time copy, duplicate, record, or otherwise reproduce the foregoing materials, in whole or in part, nor otherwise make the same available to any unauthorized person.

6.3 Property of Franchisor.

The Manual shall at all times remain the sole property of Franchisor. Franchisor may from time to time revise the contents of the Manual, and Franchisee and the Principal Shareholders expressly agree to comply with each new or changed standard.

6.4 Maintenance of Manual at Restaurants.

Franchisee shall, at all times, maintain the copy of the Manual at the Restaurant and insure that the Manual is kept current and up-to-date, and in the event of any dispute as to the contents of the Manual, the terms of the master copy of the Manual maintained by Franchisor at Franchisor's home office shall be controlling.

ARTICLE VII
CONFIDENTIAL INFORMATION

7.1 Proprietary Information.

Franchisee and the Principal Shareholders acknowledge that, over the term of this Agreement, they are to receive proprietary information which Franchisor has developed over time at great expense, including, but not limited to, information regarding the System, the Concept, methods of site selection, marketing and public relations methods, product analysis and selection, recipes for preparing, cooking and serving food and beverages, and service methods and skills relating to the development and operation of Restaurants. They further acknowledge that this information, which includes, but is not necessarily limited to, that contained in the Manual, is not generally known in the industry and is beyond their own present skills and experience, and that to develop it themselves would be expensive, time consuming and difficult. Franchisee and the Principal Shareholders further acknowledge that Franchisor's information provides a competitive advantage and will be valuable to them in the development of their business, and that gaining access to it is therefore a primary reason why they are entering into this Agreement. Accordingly, Franchisee and the Principal Shareholders agree that Franchisor's information, as described above, which may or may not be "trade secrets" under prevailing judicial interpretations or statutes, is private and valuable, and constitutes trade secrets belonging to Franchisor; and in consideration of Franchisor's confidential disclosure to them of these trade secrets, Franchisee and the Principal Shareholders agree as follows (subject to the provisions of the Development Agreement and any other franchise agreement between Franchisor, Franchisee, and the Principal Shareholders):

7.1.1

During the term of this Agreement, neither Franchisee nor any Principal Shareholder, for so long as such Principal Shareholder owns an interest in Franchisee, may, without the prior written consent of Franchisor, directly or indirectly engage in, or acquire any financial or beneficial interest (including any interest in corporations, partnerships, limited liability companies, trusts, unincorporated associations or joint ventures) in, advise, help, guarantee loans or make loans to, any restaurant business whose menu or method of operation is similar, in the reasonable opinion of Franchisor, to that employed by restaurant units within the System which is either (i) located in the "Territory" as defined in the Development Agreement, (ii) located in the Designated Market Area (as defined and established by Nielsen Media Research Company in its 1998-1999 map, a copy of which will be maintained by the Franchisor at the address set forth in Section 17.4) of any restaurant developed pursuant to the Development Agreement, (iii) located within a five-mile radius of any restaurant unit (whether owned by Franchisor or operated by a franchisee of Franchisor) within the System, or (iv) determined by Franchisor, exercising reasonable good faith judgment, to be a direct competitor of the System;

7.1.2

Neither Franchisee, for two years following the termination of this Agreement, nor any Principal Shareholder, for two years following the termination of all of his interest in Franchisee or the termination of this Agreement, whichever occurs first, may directly or indirectly engage in, or acquire any financial or beneficial interest (including any interest in corporations, partnerships, limited liability companies, trusts, unincorporated associations or joint ventures) in, advise, help, guarantee loans or make loans to, any restaurant business whose menu or method of operation is similar, in the reasonable opinion of Franchisor, to that employed by restaurant units within the System which is located either (i) in the "Territory" as defined in the Development Agreement, or if there is no Development Agreement, then in the Protected Territory (ii) in the Designated Market Area (as defined and established by Nielsen Media Research Company in its 1998-1999 map, a copy of which will be maintained by the Franchisor at the address set forth in Section 17.4) of any restaurant developed pursuant to the Development Agreement, (iii) within a five-mile radius of any restaurant unit (whether owned by Franchisor or operated by a franchisee of Franchisor) within the System, or (iv) within any area for which an active, currently binding development agreement has been granted by Franchisor to another franchisee as of the date of the termination; and

7.1.3

Neither Franchisee nor any Principal Shareholder shall at any time (i) appropriate or use the Concept, or any portion thereof, in any restaurant business which is not within the System, (ii) disclose or reveal any portion of the Concept or the System to any person, other than to Franchisee's employees at the Restaurant as an incident of their training, (iii) acquire any right to use the Proprietary Marks, except in connection with the operation of the Restaurant, or (iv) communicate, divulge or use for the benefit of any other person or entity any confidential information, knowledge or know-how concerning the methods of development or operation of a restaurant utilizing the Concept and the System, which may be communicated by Franchisor in connection with the Restaurant.

7.2 Injunctive Relief.

Franchisee and Principal Shareholders agree that the provisions of this Article VII are and have been a primary inducement to Franchisor to enter into this Agreement, and that, in the event of breach thereof, Franchisor would be irreparably injured and would be without adequate remedy at law. Therefore, in the event of a breach, or a threatened or attempted breach, of any of such provisions, Franchisor shall be entitled, in addition to any other remedies which it may have hereunder or in law or in equity (including without limitation the right to terminate this Agreement), to a preliminary and/or permanent injunction and a decree for specific performance of the terms hereof without the necessity of showing actual or threatened damage, and without being required to furnish a bond or other security.

7.3 Investments in Publicly Traded Companies.

The restrictions contained in Subsections 7.1.1 and 7.1.2 above shall not apply to ownership of less than 2% of the shares of a company whose shares are listed and traded on a national securities exchange, if such shares are owned for investment only and are not owned as an officer, director, employee, or consultant of such publicly traded company.

7.4 Reforming Provisions.

If any court or other tribunal having jurisdiction to determine the validity or enforceability of this Article VII determines that it would be invalid or unenforceable as written, then the provisions hereof shall be deemed to be modified or limited to such extent or in such manner as necessary for such provisions to be valid and enforceable to the greatest extent possible.

7.5 Confidentiality Agreements.

Franchisee shall require its general manager and each of its managers to execute a confidentiality agreement in the form attached hereto as Appendix A. Franchisee shall be responsible for compliance of its employees with the agreements identified in this Article VII. Furthermore, at the request of Franchisor, Franchisee shall provide Franchisor with executed confidentiality agreements from all executive officers, directors and holders of a beneficial interest of 10% or more in Franchisee. With respect to each person who becomes associated with Franchisee in one of the capacities enumerated above subsequent to execution of this Agreement, Franchisee, at the request of Franchisor, shall require and obtain executed confidentiality agreements from such persons and promptly provide Franchisor with copies of such agreements. In no event shall any person enumerated be granted access to any confidential aspect of the Concept, the System, the Manual or the Restaurant prior to execution of a confidentiality agreement.

ARTICLE VIII
USE OF NAME; ADVERTISING

8.1 Advertising Under Trade Name.

During the term of this Agreement, Franchisee agrees to advertise under the trade name "Garfield's Restaurant & Pub" or similar variations thereof, and to diligently promote and make every reasonable effort to steadily increase the business of the Restaurant by proper use of advertising media.

8.2 National Advertising and Marketing Program.

Franchisee shall monthly remit 0.5% of the monthly Gross Receipts for the Restaurant to the Garfield's National Advertising and Marketing Program (the "Program"), due and payable with the Continuing Royalty Fee. "Gross Receipts" shall be as defined in Subsection 2.1.2 of this Agreement. The Program will be maintained and administered as follows:

8.2.1

Franchisor shall direct all advertising and marketing programs with sole discretion over the materials and media used in such programs and the placement and allocation thereof. Franchisor may delegate such authority in writing to one or more of its franchisees, and may terminate the delegation at any time in its sole discretion. Franchisee agrees and acknowledges that the Program is intended to maximize general public recognition and acceptance of the Proprietary Marks for the benefit of those employing the Concept within the advertising coverage area and that Franchisor and its delegate(s) undertake no obligation in administering the Program to make expenditures for Franchisee which are equivalent or proportionate to its remittance, or to ensure that any particular franchisee benefits directly or pro rata from the placement of advertising;

8.2.2

Franchisee agrees that the funds may be used to meet any and all costs of maintaining, administering, directing and implementing advertising (including, without limitation, the cost of preparing and conducting television, radio, magazine and newspaper advertising campaigns, promotional and merchandising programs and other public relations and marketing research activities; employing advertising agencies, which may be affiliated with Franchisor, to assist therein). All sums paid by Franchisee to the Program shall be maintained in a separate account from the other funds of Franchisor and shall not be used to defray any of Franchisor's general operating expenses, except for administrative costs and overhead, as Franchisor may incur in activities reasonably related to the administration or direction of the Program and advertising programs;

8.2.3

It is anticipated that most contributions to the Program shall be incurred for advertising, market research and promotional purposes during Franchisor's fiscal year within which contributions are made. If, however, excess amounts remain in the Program at the end of such fiscal year, all expenditures in the following fiscal year(s) shall be made first out of any current interest or other earnings of the Program, next out of any accumulated earnings, and finally from principal. Franchisor may issue to its franchisees credit memo while excess amounts are outstanding;

8.2.4

Although Franchisor intends to maintain the Program continually, Franchisor maintains the right to terminate the Program. The Program shall not be terminated, however, until all monies in the Program have been expended for advertising and promotional purposes or refunded to its franchisees without interest; and

8.2.5

An accounting of the operation of the Program shall be prepared annually and shall be made available to Franchisee upon request. Franchisor reserves the right, at its option, to require that such annual accounting include an audit of the operation of the Program prepared by an independent certified public accountant selected by Franchisor and prepared at the expense of the Program.

8.3 Local Advertising.

Franchisee shall incur and pay monthly for electronic and print media (or such other promotional campaign materials as Franchisor may approve) an amount equal to 3.0% of its Gross Receipts for the preceding month (or such shorter period as it has been open). Upon written request of Franchisee, Franchisor may, at its discretion, reduce this requirement for a particular calendar year. Franchisee acknowledges that it has primary responsibility for the promotion, advertising and marketing of the Restaurant, and that, unless otherwise agreed in writing, such responsibility is neither altered nor diminished by required contributions to a fund or funds established by Franchisor for the promotion of the Concept and the System.

8.4 Cooperative Advertising Campaigns.

From time to time, Franchisor may designate a local, regional or national advertising coverage area in which at least two or more franchised restaurants of Franchisor or Franchisor-owned restaurants are located for purposes of developing short-term, cooperative advertising campaigns. Franchisee agrees to participate in and contribute its share to such campaigns. The cost of the campaign shall be allocated among such franchised restaurants of Franchisor and Franchisor-owned restaurants within the advertising coverage area. Each franchisee's share shall be in proportion to the ratio of its sales to aggregate sales of all such franchised restaurants of Franchisor and Franchisor-owned restaurants within the advertising coverage area during the quarter preceding the commencement of the campaign; provided, that the contributions shall not exceed 3.5% of Franchisee's Gross Receipts for such quarter. Contributions to such campaigns will be credited towards the advertising expenditures required under Section 8.2, and then towards the advertising fee required under Section 8.3. At the time a campaign is submitted, Franchisor shall submit a list to Franchisee of all franchised restaurants and Franchisor-owned restaurants within the advertising coverage area.

8.5 Opening Promotions.

Franchisee shall submit to Franchisor, for Franchisor's approval, an advertising campaign plan relating to the promotion of the opening of the Restaurant which is sufficient to meet the needs of the relevant market. The Manual contains a Press Release kit to assist Franchisee in this regard. Franchisee shall conduct the approved advertising campaign and make all expenditures for advertising to promote the opening of the Restaurant no later than sixty days after the Restaurant opens for business. Franchisor will reimburse 50% of Franchisee's out-of-pocket opening advertising expenditures up to a maximum of Two Thousand Five Hundred Dollars ($2,500), if Franchisee meets the following criteria:

(i) Franchisee's opening advertising expenditures are made within sixty days after the opening of the Restaurant;

(ii) Franchisee submits to Franchisor within one hundred twenty days after the opening of the Restaurant documentation for the opening advertising expenditures, such as paid invoices from suppliers of goods or services evidencing expenditure on the opening advertising promotion; and

(iii) Franchisee's opening advertising expenditures are made pursuant to the approved advertising campaign plan and in accordance with the "Grand Opening Reimbursement Program Policy Guidelines" set forth in the Manual.

8.6 Prior Approval of Franchisor.

No coupon, promotional campaign, design, advertisement, sign, or form of publicity, including the form, color, number, location and size of the same, shall be used by Franchisee unless such is first submitted to, and approved by, Franchisor in writing. Without limiting the generality of the foregoing sentence, such advertising materials shall include without limitation the use of the Internet and Websites established and maintained by the Franchisee. Upon written notice by Franchisor, Franchisee agrees to remove, shut down or modify, at the discretion of Franchisor, any advertising materials (including without limitation Websites) found to be objectionable by Franchisor. If said materials are not removed, shut down or modified within five days after such notice, Franchisor, or its authorized agents, may at any time enter the Restaurant or upon the Premises or elsewhere, remove such objectionable signs or advertising media, or take any other action required to remove such advertising, and may keep or destroy such signs or other media without paying therefor, and without incurring liability to Franchisee for trespass or other tort.

ARTICLE IX
INSURANCE

9.1 Procurement of Policies.

Franchisee shall procure, at Franchisee's expense, prior to the commencement of any operations under this Agreement, and maintain in full force and effect during the term of this Agreement, an insurance policy or policies protecting Franchisee and Franchisor, and their respective officers, directors, partners and employees, against any loss, liability, personal injury, death, property damage, or expense whatsoever arising or occurring upon or in connection with the Restaurant and the Premises, as well as such other insurance applicable to such other special risks as Franchisor may reasonably require for its own and Franchisee's protection.

9.2 Coverage and Amounts.

Such policy or policies shall be written by an insurance company satisfactory to Franchisor in accordance with standards and specifications set forth in the Manual or otherwise in writing, and shall include, at a minimum, the following :

KIND OF INSURANCE	MINIMUM LIMITS OF LIABILITY
Worker's Compensation	Statutory
Employer's Liability	$500,000 bodily injury by accident $500,000 bodily injury by disease
Employment Practices Liability	$500,000 each occurrence
Comprehensive General Public Liability, including Product Liability, Injury and Liquor Liability	$1,000,000 each person $1,000,000 each occurrence $2,000,000 aggregate
Fire, Vandalism and Extended Coverage	Full replacement value
Umbrella Liability Insurance	$10,000,000
Other Required by Law	Lawful Limits

Except for worker's compensation, Franchisor shall be named as an additional insured in all such policies. Franchisor may require such additional coverage (in either kinds or amounts) as it determines to be reasonable under the circumstances.

9.3 Additional Coverage.

Franchisee must also carry business interruption insurance written by an insurance company satisfactory to Franchisor. In connection with any construction, renovation, refurbishing, or remodeling of the Restaurant, Franchisee shall require the general contractor to maintain, with a reputable insurer, comprehensive general liability insurance (with builder's risk, product liability, completed operations and independent contractors' coverage) in at least the amount of Five Hundred Thousand Dollars ($500,000), with Franchisor named as an additional insured, as well as worker's compensation, employer's liability insurance and such other insurance as may be required by law. Except for worker's compensation, Franchisor shall be named as an additional insured in all such policies.

9.4 Obligation Not Limited.

Franchisee's obligation to obtain and maintain the foregoing policy or policies in the amounts specified shall not be limited in any way by reason of any insurance which may be maintained by Franchisor, nor shall Franchisee's performance of that obligation relieve it of liability under the indemnity provisions set forth in Section 16.2 of this Agreement.

9.5 Evidence of Insurance.

Upon obtaining the insurance required by this Agreement, and on each policy renewal date thereafter, Franchisee shall promptly submit evidence of satisfactory insurance and proof of payment therefor to Franchisor together with, upon request, copies of all policies and policy amendments. The evidence of insurance shall include a statement by the insurer that the policy or policies will not be canceled or materially altered without at least thirty days' prior written notice to Franchisor.

9.6 Authority of Franchisor to Procure Insurance.

Should Franchisee, for any reason, fail to procure or maintain the insurance required by this Agreement, as revised from time to time by the Manual or otherwise in writing by Franchisor for all franchisees, Franchisor shall have the right and authority (without, however, any obligation to do so) immediately to procure such insurance and to charge same to Franchisee, which charges, together with a reasonable fee for Franchisor's expenses in so acting, shall be payable by Franchisee immediately upon notice.

ARTICLE X
TRANSFERS OF INTEREST

10.1 Transfer by Franchisor.

Franchisor shall have the right to transfer or assign all or any part of its rights or obligations herein to any person or legal entity.

10.2 Transfer by Franchisee.

10.2.1 Conditions on Transfer.

Franchisee understands and acknowledges that the rights and duties set forth in this Agreement are personal to Franchisee and the Principal Shareholders, and Franchisor has granted this franchise in reliance on Franchisee's and Principal Shareholders' business skills, financial capacity, and personal character. Accordingly, Franchisee shall neither sell, assign, transfer, pledge, mortgage or otherwise encumber this franchise, the Restaurant, the Premises, or this Agreement or any right or interest herein, nor permit any such assignment, transfer or encumbrance to occur by operation of law without the prior written consent of Franchisor. Franchisee may not, without the prior written consent of Franchisor, fractionalize any of the rights of Franchisee granted pursuant to this Agreement. Franchisee shall not permit any person or persons (if acting as a group) owning an equity interest in excess of 20% in Franchisee to sell, assign, transfer, fractionalize, pledge, mortgage or otherwise encumber his or their equity interest in Franchisee, nor permit any such assignment, transfer or encumbrance to occur by operation of law without the prior written consent of Franchisor. For purposes of this Agreement, a merger, consolidation, conveyance of the properties and assets of Franchisee substantially as an entirety to any person, any sale (or series of sales) of Franchisee's equity that reduces the equity ownership of the prior, remaining shareholders by 20% or more during the term of this Agreement, or any reorganization of Franchisee shall be deemed to be a transfer subject to the provisions of this Section 10.2. The assignment of any interest, other than as provided in this Agreement, any purported assignment or transfer, by operation of law or otherwise, not having the written consent of Franchisor required by this Section 10.2 shall be null and void and shall constitute a material breach of this Agreement, for which Franchisor may then terminate without opportunity to cure pursuant to Section 11.2 of this Agreement.

10.2.2 Consent.

Franchisor shall not unreasonably withhold its consent to a transfer of any interest in this Agreement, the Restaurant, the Premises or Franchisee; provided, however, that if a transfer, alone or together with other previous, simultaneous, or proposed transfers, would have the effect of transferring Franchisee's interest in this Agreement, the Restaurant, the Premises or a controlling interest in Franchisee, Franchisor may, in its sole discretion, require as a condition of its approval the satisfaction of any or all of the following conditions set forth below. As the term is used in this Section 10.2, "Transferor" shall include Franchisee and all Principal Shareholders in case of a transfer by Franchisee, and in case of a transfer by one or more Principal Shareholders, the term shall include such Principal Shareholders and Franchisee:

(i) All of Transferor's accrued monetary obligations to Franchisor and all other outstanding obligations related to the Restaurant or any other franchised restaurant granted to Franchisee from Franchisor shall have been satisfied;

(ii) Transferor is not in default of any provisions of this Agreement, any amendment hereof or successor hereto, or the Development Agreement, if applicable, or any other agreement between Transferor and Franchisor or its subsidiaries and affiliates;

(iii) Transferor shall have executed a general release in a form satisfactory to Franchisor, of any and all claims against Franchisor and its officers, directors, shareholders and employees, in their corporate and individual capacities, including, without limitation, claims arising under all applicable laws, rules and ordinances;

(iv) The transferee shall enter into a written agreement, in a form satisfactory to Franchisor, assuming and agreeing to discharge all of Transferor's obligations under this Agreement, or if the obligation of Franchisee were guaranteed by the transferor, the transferee shall guarantee the performance of all such obligations in writing in a form satisfactory to Franchisor;

(v) The transferee shall demonstrate to Franchisor's satisfaction that transferee and its owners and employees meet Franchisor's managerial and business standards; possess a good moral character, business reputation and credit rating; have the aptitude and ability to conduct the Restaurant (as may be evidenced by prior related business experience or otherwise); and have adequate financial resources and capital to operate the Restaurant;

(vi) At Franchisor's option, Franchisee or the transferee, as the case may be, shall execute (and/or, upon Franchisor's request, shall cause all interested parties to execute), for a term ending on the expiration date of this Agreement, the standard form franchise agreement then being offered to new System franchisees and other ancillary agreements as Franchisor may require for a franchised restaurant of Franchisor, which agreements shall supersede this Agreement in all respects and the terms of which agreements may differ from the terms of this Agreement;

(vii) At its own expense, the transferee shall upgrade, or cause to be upgraded, the Restaurant to conform to the then-current standards and specifications of System restaurants, and shall complete the upgrading and other requirements within the time specified by Franchisor;

(viii) Transferor shall remain liable for all obligations of the Restaurant prior to the effective date of transfer and shall execute any and all instruments reasonably requested by Franchisor to evidence such liability; and

(ix) Transferee shall have paid to Franchisor a transfer fee equal to 20% of the then current initial fee charged to franchisees of Franchisor for the training, supervision, administrative costs, overhead and other Franchisor expenses incurred in connection with the transfer.

10.2.3 No Security Interest.

In addition to the requirement to obtain Franchisor's consent as required by Subsection 10.2.1 above, Franchisee shall not grant a mortgage, security interest or other encumbrance in the Restaurant, the Premises or in any of its assets unless the mortgagee, secured party or similar party agrees that in the event of any default by Franchisee under any documents related to the encumbrance, Franchisor shall have the right and option to purchase the rights of the mortgagee, secured party or similar party upon payment of all sums then due to such party.

10.3 Right of First Refusal.

10.3.1 Right.

If Franchisee or the Principal Shareholders (collectively the "Seller"), desires to accept any bona fide offer from a third party to purchase an interest in this Agreement, the Restaurant, the Premises or an equity interest in Franchisee, as the case may be, the Seller shall notify Franchisor in writing of each such offer by a full and complete statement of the terms and conditions including the considerations therefor. Franchisor shall have the right and option, exercisable within thirty days after receipt of such written notification, to send written notice to the Seller that Franchisor or its assignee intends to purchase the Seller's interest on the same terms and conditions offered by the third party. Seller shall promptly notify Franchisor of any modification of the aforementioned terms and conditions, which modification shall constitute a modification of Franchisor's option subject to the provision of Subsection 10.3.2 and shall commence a new thirty day option period. In the event that Franchisor or its assignee elects to purchase the Seller's interest, the closing on such purchase must occur within sixty days from the date of notice to the Seller of the election to purchase by Franchisor. Failure of Franchisor to exercise the option afforded by this subsection shall not constitute a waiver of any other provision of this Agreement, including all of the requirements of this Article X, with respect to a proposed transfer.

10.3.2 Consideration.

In the event the consideration, terms and/or conditions offered by the Seller are such that Franchisor may not reasonably be required to furnish the same consideration, terms and/or conditions, then Franchisor or its assignee may purchase such interest proposed to be sold for the reasonable equivalent in cash. If the parties hereto cannot agree within a reasonable time on the reasonable equivalent in cash of the consideration, terms and/or conditions offered by the Seller, Franchisor and Franchisee shall select an independent appraiser whose determination of a reasonable equivalent in cash shall be binding. If Franchisor and Franchisee cannot agree on an independent appraiser in a reasonable time, an independent appraiser shall be designated by Franchisor and Franchisee, and the two independent appraisers so designated shall select a third independent appraiser. The determination of a reasonable equivalent in cash by a majority of the appraisers so chosen shall be binding. Franchisor and Franchisee shall bear the costs of the appraisals on an equal basis.

10.4 Transfer Upon Death or Mental Incompetency.

Upon the death or mental incompetency of Franchisee or a Principal Shareholder, the personal representative of such Principal Shareholder shall transfer his or her interest to a third party approved by Franchisor within six months after such death or mental incompetency. Such transfers, including, without limitation, transfers by devise or inheritance, shall be subject to the same conditions as any inter vivos transfer as set forth in this Article X. However, in the case of transfer by devise or inheritance, if the heirs or beneficiaries of any such person are unable to meet the conditions in this Article X, the personal representative of the deceased shall have six months to dispose of the deceased's interest in this Agreement, the Restaurant, the Premises or Franchisee, which disposition shall be subject to all the terms and conditions for transfers contained in this Article X. If the interest is not disposed of within such time, Franchisor may terminate this Agreement.

10.5 Non-Waiver of Claims.

Franchisor's consent to a transfer of any interest in the franchise granted herein, this Agreement, the Restaurant, the Premises, or any equity interest in Franchisee shall not constitute a waiver of any claims it may have against the transferring party, nor shall it be deemed a waiver of Franchisor's right to demand exact compliance with any of the terms of this Agreement or the agreement(s) executed by any transferee.

10.6 Permitted Assignments.

Notwithstanding anything to the contrary contained herein, Franchisee or any Principal Shareholders may assign its or their interest in this Agreement the Restaurant, the Premises, or in Franchisee to other existing shareholders of Franchisee or to such person's spouse, child or parent; provided, however, that in each case, any such assignments, individually or in the aggregate, will not result in a change in "control" of Franchisee. For purpose of this section, "control" shall mean possession of the power, directly or indirectly, through stock ownership or otherwise, to direct the management and policies of Franchisee. A Principal Shareholder may also transfer any interests in Franchisee to a revocable living trust created by such Principal Shareholder, to a family limited partnership (or similar family entity), so long as the Principal Shareholder or his or her spouse is the general partner of such partnership, and/or to an irrevocable trust solely for the benefit of the Principal Shareholder's lineal descendants. Any such permitted assignments shall be subject to all terms and conditions of this Agreement, including, without limitation, restrictions on subsequent assignment or sale of ownership.

ARTICLE XI
DEFAULT AND TERMINATION

11.1 Termination by Franchisor Without Notice.

Franchisee and the Principal Shareholders shall be deemed to be in default under this Agreement, and all rights granted herein shall automatically terminate without notice to Franchisee, if Franchisee or any Principal Shareholder become insolvent or generally fails to pay, or admits in writing its inability to pay, debts as they become due, or Franchisee or any Principal Shareholder applies for, consents to, or acquiesces in the appointment of, a trustee, receiver or other custodian for Franchisee or any Principal Shareholder or any of its or their property or makes a general assignment for the benefit of creditors; or, in the absence of such application, consent or acquiescence, a trustee, receiver or other custodian is appointed for Franchisee or any Principal Shareholder, or for a substantial part of its or their property and is not discharged within thirty days; or any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding, is commenced in respect of Franchisee or any Principal Shareholders and, if such case or proceeding is not commenced by Franchisee or any Principal Shareholder, it is consented to or acquiesced in by Franchisee or any Principal Shareholder or remains for thirty days undismissed; or Franchisee or any Principal Shareholder take any action to authorize, or in furtherance of, any of the foregoing; or Franchisee's Gross Receipts for any rolling period of twelve calendar months are less than $600,000.00.

11.2 Termination by Franchisor with Notice.

Franchisee and the Principal Shareholders shall be deemed to be in default, and Franchisor may, at its option, terminate this Agreement and all rights granted hereunder without affording Franchisee or the Principal Shareholders any opportunity to cure the default, effective immediately upon receipt of notice by Franchisee, upon the occurrence of any of the following events:

11.2.1

If Franchisee at any time ceases to operate or otherwise abandons the Restaurant; provided, however, that if Franchisee ceases to operate the Restaurant due to a casualty loss for a period of less than six consecutive months, Franchisee will not be presumed to have abandoned the Restaurant;

11.2.2

If Franchisee, any Principal Shareholder, or any officer, director, or manager of Franchisee is convicted of or pleads nolo contendere to a felony, a crime involving moral turpitude, or any other crime or offense that is reasonably likely, in the sole opinion of Franchisor, to adversely affect the System, the Concept, the Proprietary Marks, the goodwill associated therewith, or Franchisor's interest therein;

11.2.3

If Franchisee or any Principal Shareholder purports to transfer any rights or obligations under this Agreement, the Restaurant, the Premises or any interest in Franchisee to any third party without Franchisor's prior written consent, contrary to the terms of Article X of this Agreement;

11.2.4

If Franchisee or a Principal Shareholder fails to comply in any respect with the non-competition agreements in Article XIII hereof as to any person or if Franchisee discloses or divulges, contrary to Articles VI or VII hereof, the contents of the Manual or other trade secret or confidential information provided to Franchisee or to the Principal Shareholder by Franchisor;

11.2.5

If an approved transfer is not effected within a reasonable time following a death or mental incompetency as required by Section 10.4 hereof;

11.2.6

If Franchisor discovers that Franchisee or any Principal Shareholder made a material misrepresentation or omitted any material fact in the information that was furnished to Franchisor in connection with this Agreement;

11.2.7

If any part of this Agreement relating to the payment of fees to Franchisor, or the preservation of any of Franchisor's Proprietary Marks or other trade names, service marks, trademarks, trade secrets or secret formulae licensed or disclosed hereunder is declared invalid or unenforceable for any reason; or

11.2.8

If Franchisee or a Principal Shareholder, after curing a default under Section 11.3, engages in the same default whether or not such default is cured after notice, or Franchisee or Principal Shareholder is repeatedly in default under Section 11.3 hereof for failure substantially to comply with any of the requirements imposed by this Agreement, whether or not cured after notice.

11.3 Termination by Franchisor with Notice and Opportunity to Cure.

Except as provided in Sections 11.1 and 11.2 of this Agreement, Franchisee and/or a Principal Shareholder shall be deemed to be in default hereunder for any failure to comply with any of the requirements imposed by this Agreement, as it may from time to time reasonably be supplemented by the Manual, or to carry out the terms of this Agreement in good faith. After receipt from Franchisor of a written notice of termination, Franchisee and the Principal Shareholders shall have either ten days (for defaults Franchisor considers to relate to the financial obligations of the Franchisee or the operation of the Restaurant) or sixty days (for all other situations) within which to remedy any default under this Agreement and to provide evidence thereof to Franchisor. Franchisor shall specify in the notice the applicable cure period. If any such default is not cured within the cure period, or such longer period as applicable law may require or as agreed to in writing by the Franchisor, this Agreement shall terminate without further notice to Franchisee or the Principal Shareholder(s) effective immediately upon the expiration of the applicable cure period.

11.4 Termination by Franchisee.

In the event of any material breach by Franchisor of this Agreement, Franchisor shall have sixty days after its receipt from Franchisee of a written notice of intent to terminate within which to remedy such default and to provide evidence thereof to Franchisee. If such default is not cured within that time, or such longer period as applicable law may require, this Agreement shall terminate without further notice to Franchisor effective immediately upon the expiration of the sixty-day period or such longer period as applicable law may require.

Furthermore, this Agreement may be terminated by Franchisee, upon thirty days' notice to Franchisor, in the event any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution or insolvency proceeding, is commenced in respect of Franchisor; provided, should such case or proceeding not be commenced by Franchisor, this Agreement may be terminated only upon thirty days' notice to Franchisor following any consent or acquiescence by Franchisor to the case or proceeding or upon thirty days' notice to Franchisor should Franchisor not consent or acquiesce thereto and the case or proceeding has not been dismissed sixty days from the commencement thereof.

ARTICLE XII
OBLIGATIONS UPON TERMINATION OR EXPIRATION

12.1 General Obligations.

Except in the event of a termination of this Agreement pursuant to Section 11.4, upon the termination or expiration of this Agreement all rights granted hereunder to Franchisee and the Principal Shareholders shall immediately terminate, and:

12.1.1

Franchisee and the Principal Shareholders shall immediately cease to operate the Restaurant and shall not thereafter, directly or indirectly, represent to the public or hold itself out as a present or former franchisee or Franchisor;

12.1.2

Upon demand by Franchisor, Franchisee and the Principal Shareholders shall assign to Franchisor all of their right, title and interest in any lease then in effect for the Restaurant or the Premises, and Franchisee and the Principal Shareholders shall furnish Franchisor with evidence satisfactory to Franchisor of compliance with this obligation within thirty days after termination or expiration of this Agreement;

12.1.3

Franchisee and the Principal Shareholders shall immediately and permanently cease to use, by advertising or in any other manner whatsoever, any confidential methods, procedures and techniques associated with the Concept and the System; the mark "Garfield's Restaurant & Pub"; and all other Proprietary Marks and distinctive slogans, signs, symbols, or devices associated with the Concept and the System. In particular, Franchisee and the Principal Shareholders shall cease to use, without limitation, all signs, equipment, advertising materials, stationery and any other articles which display the Proprietary Marks associated with the Concept and the System;

12.1.4

Franchisee and the Principal Shareholders shall take such action as may be necessary to cancel any assumed name or equivalent registration which contains the mark "Garfield's Restaurant & Pub," the Proprietary Marks or any other service mark or trademark of Franchisor, and, if applicable, Franchisee and the Principal Shareholders will change its corporate name so as to delete therefrom the words "Garfield's Restaurant & Pub," the Proprietary Marks or any other similar combination, and Franchisee and the Principal Shareholders shall furnish Franchisor with evidence satisfactory to Franchisor of compliance with this obligation within ten days after termination or expiration of this Agreement;

12.1.5

If Franchisor does not demand an assignment of the Lease under Subsection 12.1.2, Franchisee and the Principal Shareholders shall make such modifications or alterations to the Premises operated hereunder (including, without limitation, the changing of the telephone number) immediately upon termination or expiration of this Agreement as may be necessary to prevent any association between Franchisor or the System and any business subsequently operated by Franchisee, the Principal Shareholders or others, and shall make such specific additional changes thereto as Franchisor may reasonably request for that purpose including, without limitation, the removal of all distinctive physical and structural features identifying the Concept. In the event Franchisee or the Principal Shareholders fail or refuse to comply with the requirements of this section, Franchisor shall have the right to enter upon the Premises where the Restaurant was operated, without being guilty of trespass or any other tort, for the purpose of making or causing to be made such changes as may be required at the expense of Franchisee and the Principal Shareholders, which expense Franchisee and the Principal Shareholders agree to pay upon demand;

12.1.6

Franchisee and the Principal Shareholders agree, in the event it or they continue to operate or subsequently begins to operate any other business, not to use any reproduction, counterfeit, copy, or colorable imitation of the Proprietary Marks either in connection with such other business or the promotion thereof, which is likely to cause confusion, mistake, or deception, or which is likely to dilute Franchisor's rights in and to the Proprietary Marks, and further agree not to utilize any designation of origin or description or representation which falsely suggests or represents an association or connection with Franchisor so as to constitute unfair competition;

12.1.7

Franchisee and the Principal Shareholders shall promptly pay all sums owing to Franchisor and its subsidiaries and affiliates. In the event of termination for any default of Franchisee or the Principal Shareholders, such sums shall include all damages, costs and expenses, including reasonable attorneys' fees, incurred by Franchisor as a result of the default, which obligation shall give rise to and remain, until paid in full, a lien in favor of Franchisor against any and all of the personal property, equipment, inventory and fixtures owned by Franchisee and the Principal Shareholders and on the Premises operated hereunder at the time of default;

12.1.8

Franchisee and the Principal Shareholders shall pay Franchisor all damages, costs and expenses, including reasonable attorneys' fees, incurred by Franchisor subsequent to the termination or expiration or other relief for the enforcement of any provisions of this Section 12.1;

12.1.9

Franchisee and the Principal Shareholders shall immediately turn over to Franchisor all material, including, without limitation, all manuals (including the Manual) and all records, instructions, correspondence, brochures, agreements and any and all other materials and all copies thereof in Franchisee's possession relating to the operation of the Restaurant (all of which are acknowledged to be Franchisor's property), and shall retain no copy or record of any of the foregoing, excepting only Franchisee's copy of this Agreement and of any correspondence between the parties hereto, and any other documents which Franchisee or the Principal Shareholders reasonably need for proper business purposes or compliance with any provision of law;

12.1.10

Franchisee shall not remove any property from the Restaurant Premises for a period of thirty days after the termination of this Agreement. At the option of Franchisor, within ten days after the date of termination or expiration of this Agreement, Franchisee and Franchisor shall arrange for an inventory to be made, at Franchisee's cost of all the personal property, fixtures, equipment and inventory of Franchisee related to the operation of the Restaurant. As to items that could be considered exclusively for use in a Garfield's Restaurant & Pub Restaurant, Franchisor shall have the option to purchase from Franchisee any or all of such items at fair market value. The determination of items deemed to be exclusively used in a Garfield's Restaurant & Pub Restaurant shall be reasonably made by Franchisor. If the parties hereto cannot agree on fair market value within a reasonable time, the parties hereto shall select an appraiser whose determination of fair market value shall be binding. If the parties cannot agree on an appraiser within a reasonable time, one independent appraiser shall be designated by Franchisor and another by Franchisee, and the two independent appraisers so designated shall select a third independent appraiser. The determination of fair market value of a majority of appraisers so chosen shall be binding. Franchisee and Franchisor shall bear the costs of the appraisal on an equal basis. If Franchisor elects to exercise the option to purchase herein provided, it shall have ten days after determination of fair market value to notify Franchisee of its exercise of the option to purchase and shall have the right to set

off all amounts due from Franchisee and the Principal Shareholders under this Agreement against any payment therefor.

As to the remaining items of personal property, fixtures, equipment and inventory, Franchisee and the Principal Shareholders hereby grant Franchisor a right of first refusal to purchase such items on the same terms and conditions that a bona fide third party has made an offer to Franchisee or the Principal Shareholders for the purchase of any or all of such items. Franchisee shall promptly notify Franchisor of the receipt of an offer to purchase any or all of such items, and if Franchisor elects to exercise its right of first refusal provided herein, it shall have ten days to notify Franchisee of its election to exercise the right. Furthermore, Franchisor shall have the right to set off all amounts due from Franchisee and the Principal Shareholders under this Agreement against any payment therefor; and

12.1.11

Franchisee and the Principal Shareholders shall comply with the agreements contained in Section 13.4 of this Agreement.

12.2 Obligations Upon Termination by Franchisee.

Upon termination of this Agreement pursuant to Section 11.4, all rights granted hereunder to Franchisee and the Principal Shareholders shall immediately terminate, and Franchisee and the Principal Shareholders shall be subject to all the terms of Section 12.1.

12.3 Refund of Initial Fee Upon Termination.

In the event of termination by reason of Franchisee's failure after a good faith effort to obtain the necessary state or local liquor licenses as required in Section 4.13, Franchisor shall refund to Franchisee, without interest, the Initial Fee referred to in Subsection 2.1.1, less any expenses incurred and damages sustained by Franchisor in connection with its performance hereunder prior to the date of such termination. Franchisor shall also repay the Initial Fee under the circumstances described in Subsection 5.1.3 hereof. In the event of termination for any other reason, Franchisor shall have no obligation to refund any amount previously paid by Franchisee or the Principal Shareholders, and Franchisee and the Principal Shareholders shall be obligated to promptly pay all sums which are then due Franchisor.

ARTICLE XIII
AGREEMENTS

13.1 Best Efforts.

Franchisee agrees that, during the term of this Agreement, except as otherwise approved in writing by Franchisor, Franchisee, the Principal Shareholders or Franchisee's general manager, shall devote full time, energy and best efforts to the management and operation of the Restaurant.

13.2 Franchisee and Principal Shareholders Agreement Not to Compete.

Franchisee and the Principal Shareholders agree that, during the term of this Agreement, except as otherwise approved in writing by Franchisor, Franchisee and the Principal Shareholder shall not, either directly or indirectly, for itself or themselves, or through, on behalf of, or in conjunction with, any person, persons, partnership, or corporation, divert or attempt to divert any business or customer of any Garfield's Restaurant & Pub Restaurant or any other franchise or company-owned business of Franchisor to any competitor, by direct or indirect inducement or otherwise, or do or perform, directly or indirectly, any other act injurious or prejudicial to the goodwill associated with Franchisor's Proprietary Marks, the Concept and the System.

13.3 Franchisor Agreement Not to Compete.

Franchisor agrees that during the term of this Agreement, except as otherwise approved in writing by Franchisee, Franchisor shall not intentionally or maliciously:

13.3.1

Divert or attempt to divert any material business from the Restaurant to any competitor; provided, this Subsection 13.3.1 shall not apply to any present or future Garfield's Restaurant & Pub Restaurants, or any other franchise or company-owned business of Franchisor;

13.3.2

Employ or seek to employ any person who is at that time employed by Franchisee or otherwise induce such person to leave his or her employment; or

13.3.3

Nothing in this Agreement shall prohibit Franchisor's ownership or operation of any business which sells food and beverages.

13.4 Interference with Employment Relations.

During the term of this Agreement, neither Franchisor, Franchisee, nor the Principal Shareholders shall employ or seek to employ in a managerial position (i.e., in a position at a pay grade at or above that of an assistant restaurant manager or kitchen manager), directly or indirectly, any person who is at the time or was at any time during the prior six months employed by the other party or any of its subsidiaries or affiliates, or by any franchisee in the System. This section shall not be violated if, at the time Franchisor or Franchisee/Principal Shareholders employs or seeks to employ such person, such former employer has given its written consent. Notwithstanding any other provision of this Agreement, the parties hereto acknowledge that if this section is violated, such former employer shall be entitled to liquidated damages equal to three times the annual salary of the employee involved, plus reimbursement of all costs and attorneys' fees incurred. In addition to the rights granted to the parties hereto, the parties hereto acknowledge and agree that any franchisee from which an employee was hired by a party to this Agreement in violation of the terms of this section shall be deemed to be a third-party beneficiary of this provision and may sue and recover against the offending party the liquidated damages herein set forth; provided, however, the failure by Franchisee to enforce this section shall not be deemed to be a violation of this section.

13.5 Reduction of Scope of Agreement.

Franchisee and the Principal Shareholders understand and acknowledge that Franchisor shall have the right, in its sole discretion, to reduce the scope of any agreement set forth in Sections 13.2 and 7.1 of this Agreement, or any portion thereof, without consent, effective immediately upon receipt by Franchisee of written notice thereof, and Franchisee and the Principal Shareholders agree that they shall comply with any agreement as so modified, which shall be fully enforceable notwithstanding the provisions of Article XVI hereof.

13.6 Reforming Provisions.

If any court or other tribunal having jurisdiction to determine the validity or enforceability of this Article XIII determines that it would be invalid or unenforceable as written, then the provisions hereof shall be deemed to be modified or limited to such extent or in such manner as necessary for such provisions to be valid and enforceable to the greatest extent possible.

ARTICLE XIV
TAXES, PERMITS AND INDEBTEDNESS

14.1 Prompt Payment of Taxes.

Franchisee or the Principal Shareholders shall promptly pay when due all taxes levied or assessed, including, without limitation, VAT (value added taxes), unemployment and sales taxes and all accounts and other indebtedness of every kind incurred by Franchisee in the conduct of the Restaurant. Franchisee or the Principal Shareholders shall pay to Franchisor an amount equal to any sales tax, withholding of tax, gross receipts tax, or similar tax imposed on Franchisor with respect to any payments to Franchisor required under this Agreement.

14.2 Bona Fide Dispute.

In the event of any bona fide dispute as to liability for taxes assessed or other indebtedness, Franchisee or the Principal Shareholders may contest the validity or the amount of the tax or indebtedness in accordance with procedures of the taxing authority or applicable law; however, in no event shall Franchisee or the Principal Shareholders permit a tax sale or seizure by levy of execution or similar writ or warrant, or attachment by a creditor, to occur against the Premises, the Restaurant or any improvements thereon.

14.3 Compliance with Laws.

Franchisee and the Principal Shareholders shall comply with all federal, state and local laws, rules and regulations, and shall timely obtain any and all permits, certificates, or licenses necessary for the full and proper conduct of the Restaurant under this Agreement, including, without limitation, licenses to do business, fictitious name registration, sales tax permits, liquor licenses and fire clearances.

14.4 Notification of Legal Proceedings.

Franchisee or the Principal Shareholders shall notify Franchisor in writing within ten days of the commencement of any action, suit or proceeding, and of the issuance of any order, writ, injunction, award or decree of any court, agency or other governmental instrumentality, which may adversely affect the operation or financial condition of the Restaurant.

ARTICLE XV

FRANCHISEE ORGANIZATION, AUTHORITY,
AND FINANCIAL CONDITION

15.1 Entity Representations & Warranties.

Franchisee and each Principal Shareholder represent and warrant that: (a) Franchisee is a corporation duly incorporated, validly existing and in good standing under the laws of the state of its incorporation; (b) Franchisee is duly qualified and is authorized to do business and is in good standing as a foreign corporation in each jurisdiction in which its business activities or the nature of the properties owned by it requires such qualification; (c) the execution and delivery of this Agreement and the transactions contemplated hereby are within Franchisee's corporate power; (d) the execution and delivery of this Agreement has been duly authorized by Franchisee; (e) the articles of incorporation and by-laws of Franchisee delivered to Franchisor are true, complete and correct, and there have been no changes therein since the date thereof; (f) the certified copies of the minutes electing the officers of Franchisee and authorizing the execution and delivery of this Agreement are true, correct and complete, and there have been no changes therein since the date(s) thereof; (g) the specimen stock certificate delivered to Franchisor is a true specimen of Franchisee's stock certificate; (h) the balance sheet of Franchisee as of ____________ ___, _______ and the balance sheets of the Principal Shareholders as of _____________ ___, _______, ("Balance Sheets") heretofore delivered to Franchisor, are true, complete and correct, and fairly present the financial positions of Franchisee and each Principal Shareholder, respectively, as of the dates thereof; (i) the Balance Sheets have been prepared in accordance with generally accepted accounting principles; and (j) there have been no materially adverse changes in the condition, assets or liabilities of Franchisee or the Principal Shareholders since the date or dates thereof.

15.2 Covenants.

Franchisee and each Principal Shareholder covenant and agree that during the term of this Agreement: (a) Franchisee shall do or cause to be done all things necessary to preserve and keep in full force its corporate existence and shall be in good standing as a foreign corporation in each jurisdiction in which its business activities or the nature of the properties owned by it requires such qualification; (b) Franchisee shall have the corporate authority to carry out the terms of this Agreement; and (c) Franchisee shall print, in a conspicuous fashion on all certificates representing shares of its stock when issued, a legend referring to this Agreement and the restrictions on and obligations of Franchisee and the Principal Shareholders hereunder, including the restrictions in this Agreement on transfer of Franchisee's shares.

15.3 Financial Statements.

In addition to the financial information which Franchisee is required to provide to Franchisor under Subsection 4.12.2 and Section 15.1 hereof, Franchisee and the Principal Shareholders shall provide Franchisor with such other financial information as Franchisor may reasonably request from time to time, including, on an annual basis, copies of the then-most current financial statements of Franchisee and each Principal Shareholder, dated as of the end of the last preceding fiscal year of Franchisee or Principal Shareholder, said statements to be delivered to Franchisor no later than April 15 of each year, which financial statements shall be prepared in accordance with generally accepted accounting principles.

15.4 Ownership.

Franchisee shall maintain a current list of all owners of record and all beneficial owners of any class of equity security of Franchisee and shall furnish the list to Franchisor upon request. Schedule 15.4 attached to this Agreement and made a part hereof is a complete and correct listing of the directors, officers, managers and equity holders of Franchisee. Franchisee and each Principal Shareholder represent, warrant and covenant that all equity interests in Franchisee are owned as set forth on Schedule 15.4, that no such interest has been pledged or hypothecated (except in accordance with Article X, and that no change will be made in the ownership of any such interest other than as permitted by this Agreement, or otherwise consented to in writing by Franchisor. Franchisee and Principal Shareholders agree to furnish Franchisor with such evidence as Franchisor may request, from time to time, for the purpose of assuring Franchisor that the interests of Franchisee and Principal Shareholders remain as represented herein.

15.5 Guarantees.

Each Principal Shareholder, jointly and severally, hereby personally and unconditionally guarantees each of Franchisee's financial obligations to Franchisor (including, but not limited to, all obligations relating to the payment of fees by Franchisee to Franchisor). Each Principal Shareholder agrees that Franchisor may resort to such Principal Shareholder (or any of them) for payment of any such financial obligation, whether or not Franchisor shall have proceeded against Franchisee, any other Principal Shareholder or any other obligor primarily or secondarily obligated to Franchisor with respect to such financial obligation. Each Principal Shareholder hereby expressly waives presentment, demand, notice of dishonor, protest and all other notices whatsoever with respect to Franchisor's enforcement of this guaranty. In addition, each Principal Shareholder agrees that, if the performance or observance by Franchisee of any term or provision hereof is waived or the time of performance thereof extended by Franchisor, or payment of any such financial obligation is accelerated in accordance with any agreement between Franchisor and any party hereto liable in respect thereof or extended or renewed, in whole or in part, all as Franchisor may determine, whether or not notice to or consent by any Principal Shareholder or any other party liable in respect to such financial obligations is given or obtained, such actions shall not affect or alter the guaranty of each Principal Shareholder described in this section.

ARTICLE XVI
RELATIONSHIP AND INDEMNIFICATION

16.1 Relationship.

It is understood and agreed by the parties hereto that this Agreement does not create a fiduciary relationship between them, and that nothing in this Agreement is intended to constitute any party an agent, legal representative, subsidiary, joint venturer, partner, employee, or servant of the other for any purpose whatsoever. Franchisee and the Principal Shareholders are independent contractors and are not authorized to make any contract, agreement, warranty, or representation on behalf of Franchisor, or to incur any debt or obligation, express or implied, on behalf of Franchisor. Furthermore, except as expressly provided in Section 5.2.5, Franchisor shall in no event assume liability for, or be deemed liable hereunder as a result of, any such action, or by reason of any act or omission of Franchisee or the Principal Shareholders in the conduct of the Restaurant or any claim or judgment arising therefrom against Franchisor. During the term of this Agreement, Franchisee shall hold itself out to the public as operating the Restaurant pursuant to a franchise from Franchisor. Franchisee agrees to take such affirmative action as may be necessary to do so, including, without limitation, exhibiting a notice of that fact in a conspicuous place in the Restaurant, the content of which Franchisor reserves the right to specify.

16.2 Indemnification.

Franchisee and the Principal Shareholders shall indemnify and hold harmless Franchisor and its officers, directors, employees, agents, affiliates, successors and assigns from and against (a) any and all claims based upon, arising out of, or in any way related to the operation or condition of any part of the Restaurant or the Premises, the conduct of business thereat, the ownership or possession of real or personal property, and any negligent act, misfeasance or nonfeasance by Franchisee, the Principal Shareholders of any of their agents, contractors, servants, employees or licensees (including, without limitation, the performance by Franchisee or the Principal Shareholders of any act required by, or performed pursuant to, any provision of this Agreement), and (b) any and all fees (including reasonable attorneys' fees), costs and other expenses incurred by or on behalf of Franchisor in the investigation of or defense against any and all such claims.

ARTICLE XVII
GENERAL PROVISIONS

17.1 Request for Approval.

Whenever this Agreement requires the prior approval or consent of Franchisor, Franchisee or the Principal Shareholder shall make a timely written request to Franchisor therefor, and such approval or consent shall be obtained in writing.

17.2 No Liability Assumed.

Franchisor makes no warranties or guarantees upon which Franchisee or any Principal Shareholder may rely, and assumes no liability or obligation to Franchisee or any Principal Shareholder, by providing any waiver, approval, consent or suggestion to Franchisee or any Principal Shareholder in connection with this Agreement, or by reason of any neglect, delay, or denial of any request therefor.

17.3 No Waiver.

No delay, waiver, omission or forbearance on the part of Franchisor to exercise any right, option, duty, or power arising out of any breach or default by Franchisee or any Principal Shareholder, or by any other franchisee or developer of Franchisor, of any of the terms, provisions, or conditions hereof, shall constitute a waiver by Franchisor to enforce any such right, option, duty or power as against Franchisee or any Principal Shareholder, or as to any subsequent breach or default by Franchisee or any Principal Shareholder. Subsequent acceptance by Franchisor of any payments due to it hereunder shall not be deemed to be a waiver by Franchisor of any preceding breach by Franchisee or the Principal Shareholders of any terms, provisions or conditions of this Agreement.

17.4 Notices.

Any and all notices required or permitted under this Agreement shall be in writing and shall be deemed given when delivered in person, by overnight courier service, facsimile transmission or mailed by certified or registered mail, return receipt requested, to the respective parties hereto at the addresses set forth below, unless and until a different address has been designated by written notice to the others.

Franchisor: Eateries, Inc.

1220 S. Santa Fe

Edmond, Oklahoma 73003

Attention.: Larry Bader,

Vice President of Franchising

Facsimile: (405) 705-5001

Franchisee:

Facsimile: _____________________

Principal Shareholder: See Schedule 17.4

17.5 Entire Agreement.

This Agreement, the documents referred to herein, and the schedules, appendices, and/or exhibits or other attachments hereto, constitute the entire, full and complete agreement between Franchisor, Franchisee and the Principal Shareholders concerning the subject matter hereof, and supersede all prior agreements, no other representations having induced Franchisee to execute this Agreement. Except for changes or modifications of the System made from time to time by Franchisor, which shall be set forth in the Manual or in writing, no amendment, change, or variance from this Agreement shall be binding on the parties hereto unless mutually agreed to by the parties hereto and executed by their authorized officers or agents in writing .

17.6 Severability and Construction.

The parties hereto agree that:

17.6.1

Except as expressly provided to the contrary herein, each section, subsection, part, term and/or provision of this Agreement shall be considered severable; and if, for any reason, any section, subsection, part, term and/or provision herein is determined to be invalid and contrary to, or in conflict with, any existing or future law or regulation by a court or agency having valid jurisdiction, such shall not impair the operation of, or have any other effect upon, such other sections, parts, terms and/or provisions of this Agreement as may remain otherwise intelligible, and the latter shall continue to be given full force and effect and bind the parties hereto; and said invalid sections, subsections, parts, terms and/or provisions shall be deemed not to be a part of this Agreement;

17.6.2

Unless otherwise specified in this Agreement, nothing in this Agreement is intended, nor shall be deemed, to confer upon any person or legal entity other than Franchisor or Franchisee and such of their respective successors and assigns as may be contemplated by Article X hereof, any rights or remedies under or by reason of this Agreement;

17.6.3

Franchisee and Principal Shareholders expressly agree to be bound by any promise or covenant imposing the maximum duty permitted by law which is subsumed within the terms of any provision hereof, as though it were separately articulated in and made a part of this Agreement, that may result from striking from any of the provisions hereof any portion or portions which a court may hold to be unreasonable and unenforceable in a final decision to which Franchisor is a party, or from reducing the scope of any promise or covenant to the extent required to comply with such a court order;

17.6.4

All captions in this Agreement are intended solely for the convenience of the parties hereto, and none shall be deemed to affect the meaning or construction of any provision hereof;

17.6.5

All references herein to the masculine, neuter, or singular shall be construed to include the masculine, feminine, neuter, or plural, where applicable, and all acknowledgments, covenants, agreements and obligations herein made or undertaken by Franchisee shall be deemed jointly and severally undertaken by all the Principal Shareholders on behalf of Franchisee; and

17.6.6

This Agreement may be executed in several counterparts, and each copy so executed shall be deemed an original.

17.7 Remedies.

All rights and remedies of Franchisor shall be cumulative and not alternative, in addition to and not exclusive of any other rights or remedies which are provided for herein or which may be available at law or in equity in case of any breach, failure or default or threatened breach, failure or default of any term, provision or condition of this Agreement. Franchisor's rights and remedies shall be continuing and shall not be exhausted by any one or more uses thereof, and may be exercised at any time or from time to time as often as may be expedient; and any option or election to enforce any such right or remedy may be exercised or taken at any time and from time to time. The expiration or earlier termination of this Agreement shall not discharge or release Franchisee or any Principal Shareholder from any liability or obligation then accrued, or any liability or obligation continuing beyond, or arising out of, the expiration or earlier termination of this Agreement.

17.8 Force Majeure.

As used in this section, the term "Force Majeure" shall mean any act of God, strike, lock-out or other industrial disturbance, war (declared or undeclared), riot, epidemic, fire or other catastrophe, act or inaction of any government and any other similar cause not within the control of the party hereto affected thereby. If the performance of any obligation by any party hereto under this Agreement is prevented or delayed by reason of Force Majeure, which cannot be overcome by use of normal commercial measures, the parties hereto shall be relieved of their respective obligations to the extent such parties are respectively necessarily prevented or delayed in such performance during the period of such Force Majeure. The party whose performance is affected by an event of Force Majeure shall give prompt notice of such Force Majeure event to the other parties by facsimile, telephone or telegram (in each case to be confirmed in writing), setting forth the nature thereof and an estimate as to its duration, and shall be liable for failure to give such timely notice only to the extent of damage actually caused.

17.9 Applicable Law.

This Agreement takes effect upon its acceptance and execution by Franchisor in Oklahoma and shall be interpreted and construed under the laws thereof, which laws shall prevail in the event of any conflict of laws, except to the extent governed by the United States Trademark Act of 1946, as amended.

17.10 Final and Binding Arbitration.

Except as provided in Section 17.11, any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination, or invalidity of it, shall be settled by arbitration to be held in Oklahoma City, Oklahoma, in accordance with and through the AAA Commercial Arbitration Rules in effect as of the Effective Date, or such other rules to which the parties hereto may agree or the law may require. The arbitration shall be conducted by a single arbitrator selected by the American Arbitration Association. All proceedings of the arbitration, including arguments and briefs, shall be conducted in English. The arbitrator shall take evidence directly from witnesses and documents as presented by the parties; all witnesses shall be made available for cross examination. The arbitrator shall render a written award within three months of the request for arbitration, and such award shall be final and binding upon the parties hereto, non-appealable and without recourse. Judgment upon the award may be entered in any court of record of competent jurisdiction, or application may be made to such court for judicial confirmation of the award and an order of enforcement, as the law of such jurisdiction may require or allow. The prevailing party or parties (as determined by the arbitrator) shall be entitled to reimbursement from the other party(ies) of the costs of the prevailing party's own experts, evidence and legal counsel in any arbitration held under this provision and in any action filed for judicial confirmation of the award. The non-prevailing party(ies) shall also bear the expenses of arbitration.

17.11 Injunctive Relief; Venue.

Notwithstanding the provisions of Section 17.10, nothing herein contained shall bar Franchisor's right to obtain injunctive relief against threatened conduct that will cause it loss or damages, under the usual equity rules, including the applicable rules for obtaining restraining orders and preliminary injunctions. In that event, such action may be brought by Franchisor in the federal or state judicial district in which Franchisor's principal place of business is located or in any other court of competent jurisdiction.

Franchisor, Franchisee and the Principal Shareholders irrevocably consent to the arbitration and venue provisions of Sections 17.10 and 17.11 and each submits to the jurisdiction and venue in such arbitration and court(s) and waives any defenses thereto. Each party hereto agrees to service of process in any such proceeding by either personal delivery against receipt, telegram, telex, facsimile, or registered mail (with postage prepaid and return receipt requested) to the addresses set forth Section 17.4 and the attached Schedule 17.4, or any substitute addresses indicated by notice. A consent, notice or waiver transmitted by telegram, telex, or facsimile will be deemed to have been delivered two days after transmission and if mailed, seven days after mailing.

17.12 Legal Fees.

In the event that any party to this Agreement initiates any legal proceeding to construe or enforce any of the terms, conditions and/or provisions of this Agreement, including, but not limited to, its termination provisions, or to obtain damages or other relief to which any party may be entitled by virtue of this Agreement, the prevailing party or parties shall be paid its reasonable attorneys' fees and expenses by other party or parties.

17.13 Acknowledgments.

Franchisee and the Principal Shareholders acknowledge, and represent and warrant to Franchisor, that:

17.13.1

Franchisee and the Principal Shareholders have conducted an independent investigation into the ownership and operation of the Restaurant, and recognize that the business venture contemplated by this Agreement involves business risks and that its success will be largely dependent upon the ability of Franchisee and the Principal Shareholders as independent business operators and their active participation in the daily affairs of the Restaurant. Franchisor expressly disclaims the making of, and Franchisee and the Principal Shareholders acknowledge that they have not received, any warranty or guarantee, express or implied, as to the potential volume, profits, or success of the business venture contemplated by this Agreement;

17.13.2

Franchisee has received a copy of this complete Agreement, the attachments, schedules and/or exhibits hereto, and all agreements relating hereto, if any, and the Development Agreement and all agreements relating thereto, at least five business days prior to the date on which this Agreement was executed. Franchisor further acknowledges that it has received the disclosure document required by the Federal Trade Commission at the earliest of (1) the first personal meeting held for the purpose of discussing the sale or possible sale of a franchise; or (2) ten business days prior to the date on which this Agreement was executed; or (3) ten business days before the payment of any consideration in connection with the sale of the franchise contemplated hereunder;

17.13.3

Franchisee and the Principal Shareholders have read and understood this Agreement, the attachments, schedules, and/or exhibits hereto, and any other agreements related to this Agreement, including, without limitation, the Development Agreement and all agreements relating thereto, if any, and that Franchisor has accorded Franchisee and the Principal Shareholders ample time and opportunity to consult with advisors of their own choosing about the potential benefits and risks of entering into this Agreement; and

17.13.4

Franchisee and the Principal Shareholders understand that every detail of the business franchised hereunder is important to Franchisee, Franchisor, the Principal Shareholders and other franchisees in order to develop and maintain high and uniform operating standards for the System and the Concept, to increase the demand for the services and products sold by Franchisor and all franchisees of Franchisor, and to protect Franchisor's reputation and goodwill.

IN WITNESS WHEREOF, the parties hereto have duly executed, sealed and delivered this Agreement on the day and year first above written.

FRANCHISOR: EATERIES, INC.

By:

Laurence Bader

Vice President of Franchising

FRANCHISEE:

By:

PRINCIPAL SHAREHOLDER(S):

Name:

Name:

SCHEDULE A

[Street address for the Restaurant; for single franchise agreement]

SCHEDULE 15.4

to the Franchise Agreement between
Eateries, Inc. and

The directors, officers, managers and equity holders of Franchisee are:

Name of Director/Officer/Manager Title

Class and Number

of Shares or Other

Name of Equity-holder Units of Ownership

SCHEDULE 17.4

to the Franchise Agreement between

Eateries, Inc. and _________________

Name of Principal Shareholder Address and Telephone Number

APPENDIX A

CONFIDENTIALITY AGREEMENT

THIS AGREEMENT is made this ___ day of __________, _____, by and between _____________________________, a ______________ corporation ("Franchisee") and __________________, an individual employed by Franchisee ("Employee ").

WITNESSETH:

WHEREAS, EATERIES, INC. ("Franchisor") is the owner of all rights in and to a unique system for the development and operation of restaurants (the "System"), which includes proprietary rights in valuable trade names, service marks and trademarks, including the service mark Garfield's Restaurant & Pub and variations of such mark, designs and color schemes for restaurant premises, signs, equipment, procedures and formulae for preparing food and beverage products, specifications for certain food and beverage products, inventory methods, operating methods, financial control concepts, a training facility and teaching techniques; and

WHEREAS, Franchisee is the owner of the exclusive right to develop restaurants franchised by Franchisor which utilize the System ("Restaurants") for the period and in the territory described in the Development Agreement between Franchisor and Franchisee (the "Development Agreement"); and

WHEREAS, Franchisee has entered into a Franchise Agreement with Franchisor covering the franchised restaurant (the "Restaurant") at which Employee is employed; and

WHEREAS, Franchisee and Employee acknowledge that Franchisor' information as described above was developed over time at great expense, is not generally known in the industry and is beyond Franchisee's own present skills and experience, and that to develop it itself would be expensive, time-consuming and difficult, that it provides a competitive advantage and will be valuable to Franchisee in the development of its business, and that gaining access to it was therefore a primary reason why Franchisee entered into the Development Agreement; and

WHEREAS, in consideration of Franchisor's confidential disclosure to Franchisee of these trade secrets, Franchisee has agreed to be obligated by the terms of Franchise Agreement and/or the Development Agreement to execute, with each employee of Franchisee who will have supervisory authority over the development or operation of the Restaurant and/or other Restaurants in the Territory described in the Development Agreement, a written agreement protecting Franchisor' trade secrets and confidential information entrusted to Employee;

NOW, THEREFORE, in consideration of the mutual covenants and obligations contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, covenant and agree as follows:

(1) The parties hereto acknowledge and agree that Employee is or will be employed in a supervisory or managerial capacity and in such capacity will have access to information and materials which constitute trade secrets and confidential and proprietary information. The parties further acknowledge and agree that any actual or potential direct or indirect competitor of Franchisor, or of any of its Franchisees, shall not have access to such trade secrets and confidential information.

(2) The parties hereto acknowledge and agree that the System includes trade secrets and confidential information which Franchisor has revealed to Franchisee in confidence, and that protection of said trade secrets and confidential information and protection of Franchisor against unfair competition from others who enjoy or who have had access to said trade secrets and confidential information are essential for the maintenance of goodwill and special value of the System.

(3) Employee agrees that he or she shall not at any time (i) appropriate or use the trade secrets incorporated in the System, or any portion thereof, for use in any business which is not within the System; (ii) disclose or reveal any portion of the System to any person, other than to Franchisee's employees as an incident of their training; (iii) acquire any right to use, or to license or franchise the use of any name, mark or other intellectual property right which is or may be granted by any franchise agreement between Franchisor and Franchisee; or (iv) communicate, divulge or use for the benefit of any other person or entity any confidential information, knowledge or know-how concerning the methods of development or operation of the Restaurant or other Restaurants which may be communicated to Employee or of which Employee may be apprised by virtue of Employee's employment by Franchisee. Employee shall divulge such confidential information only to such of Franchisee's other employees as must have access to that information in order to operate the Restaurant or other Restaurants or to develop a prospective site for the Restaurant or other Restaurants. Any and information, knowledge and know-how, including, without limitation, drawings, materials, equipment, specifications, techniques and other data, which Franchisor designates as confidential, shall be deemed confidential for purposes of this Agreement.

(4) Employee further acknowledges and agrees that the Garfield's Operations Manual and any other materials or manuals provided or made available to Franchisee by Franchisor (collectively, the "Manuals") are loaned by Franchisor to Franchisee for limited purposes only, remain the property of Franchisor, and may not be reproduced, in whole or in part, without the written consent of Franchisor.

(5) Employee agrees to surrender to Franchisee or to Franchisor each and every copy of the Manuals and any other information or material in his/her possession or control upon request, upon termination of employment or upon completion of the use for which said Manuals or other information or material may have been furnished to Employee.

(6) The parties hereto agree that in the event of a breach of this Agreement, Franchisor would be irreparably injured and would be without an adequate remedy at law. Therefore, in the event of a breach or a threatened or attempted breach of any of the provisions hereof, Franchisor shall be entitled to enforce the provisions of this Agreement as a third-party beneficiary hereof and shall be entitled, in addition to any other remedies which it may have hereunder at law or in equity (including the right to terminate the Development Agreement), to a temporary and/or permanent injunction and a decree for specific performance of the terms hereof without the necessity of showing actual or threatened damage, and without being required to furnish a bond or other security.

(7) If any court or other tribunal having jurisdiction to determine the validity or enforceability of this Agreement determines that it would be invalid or unenforceable as written, the provisions hereof shall be deemed to be modified or limited to such extent or in such manner necessary for such provisions to be valid and enforceable to the greatest extent possible.

IN WITNESS WHEREOF, the undersigned have entered into this Agreement as of the date first above written.

FRANCHISEE EMPLOYEE

By: By:

Name: Name:

Title:

APPENDIX B
AUTHORIZATION AGREEMENT FOR PRE-ARRANGED PAYMENTS

COMPANY NAME

COMPANY I.D. NO.

I (WE) HEREBY AUTHORIZE EATERIES, INC., HEREINAFTER CALLED COMPANY, TO INITIATE DEBIT ENTRIES TO OUR CHECKING ACCOUNT INDICATED BELOW AND THE DEPOSITORY NAMED BELOW, HEREINAFTER CALLED DEPOSITORY, TO DEBIT THE SAME TO SUCH ACCOUNT.

DEPOSITORY NAME

BRANCH

CITY ______________________________STATE_________ZIP

TRANSIT/ABA NO.____________________ACCT. NO.

THIS AUTHORITY IS TO REMAIN IN FULL FORCE AND EFFECT UNTIL COMPANY AND DEPOSITORY HAS RECEIVED WRITTEN NOTIFICATION FROM ME (OR EITHER OF US) OF ITS TERMINATION IN SUCH TIME AND IN SUCH MANNER AS TO AFFORD COMPANY AND DEPOSITORY A REASONABLE OPPORTUNITY TO ACT ON IT.

NAME_______________________________________ ID#

DATE___________________ SIGNED

SIGNED

EX-10.21

LEASE

This Lease is made and entered into this 1st day of August, 1999, by and between Eateries, Inc. "EATS" (together referred to as "Tenant"), and Great Places of Shawnee, L.L.C. "GPLLC"., an Oklahoma Limited Liability Company ("Landlord").

WITNESSETH

In consideration of the mutual covenants and agreements contained in this Lease and the due and faithful performance of each and all the terms, covenants and conditions contained herein, Landlord and Tenant agree as follows:

ARTICLE 1

Leased Premises

Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the building, the parking lot, driveways, and other improvements, more particularly described on attached Exhibit "A," (the "Premises") located at 4845 N. Kickapoo, Shawnee, Oklaohma.

ARTICLE 2

Term

(A) Initial Term: This Lease shall be effective on October 1, 1999, the "Rent Commencement Date," and the initial term of this Lease shall extend to the date fifteen years from the Rent commencement Date ("Initial Term"), unless sooner terminated or extended as herein provided.  The term  "Lease Year" as used herein shall be defined as twelve months beginning on the Rent Commencement Date. Each successive Lease Year shall be that twelve-month period following the end of the first Lease Year.

(B) Option to Extend: As part of the consideration  for the execution of this Lease by Tenant, and conditioned upon Tenant having performed all of its obligations hereunder, and provided Tenant is not at the time of exercise of any such option to extend in default hereunder, Landlord hereby grants to Tenant one option to extend the Initial Term for a period of five years, upon the same terms and conditions, with rent at the rate as paid in the last year of the initial fifteen year term at the then fair market value of similar space or $20 per square foot whichever is greater. If Tenant elects to exercise the option to extend this Lease, it shall notify Landlord of its intention in writing not less than six months before the expiration of the Initial Term. Except as otherwise specifically stated in this Lease, the term of this Lease shall include the Initial Term and any extension, renewal or holdover thereof.

ARTICLE 3

Use

(A) The Premises shall be used only for the purposes of a casual theme full service restaurant. In connection therewith, Tenant shall be in compliance at all times with all applicable statutes and ordinances.

(B) Tenant shall, during the term of this Lease, operate its business on the Premises with reasonable due diligence and efficiency in a first-class and professional manner; provided, however, that this provision shall not apply if the Premises should be closed and the business of Tenant therein be temporarily shut down on account of strikes, lockouts, acts of God, repairing, cleaning, decorating or remodeling or causes beyond the control of Tenant; and provided, however, that this shall in no way affect Tenant's other obligations under this Lease, including but not limited to the payment of Rent.

ARTICLE 4

Rent

(A) Tenant agrees to pay to Landlord as rental payments "Rent"; $9,000 per month ($108,000 annually) plus 6% of gross revenues in excess of $1,800,000 (per annum) for years one (1) through five (5), $10,000 per month ($120,000 annually) plus 6% of gross revenues in excess of $2,000,000 (per annum) for years six (6) through year ten (10), $11,000 per month ($132,000 annually) plus 6% of gross revenues in excess of $2,200,000 (per annum) for years eleven (11) through year fifteen (15), or the year one rate increased by the cumulative increase in the CPI, whichever is greater, for years eleven (11) through year fifteen (15) . The monthly rental shall be paid in advance, without demand, on the first day of each calendar month during the term of this Lease prorated on a per diem basis for a fraction of any month. The prorated rent for the first fractional month of the Initial Term shall be paid on the execution of this Lease, if applicable.

As used in this lease, the term "CPI" or "Consumer Price Index" shall mean the average for urban wage earnings and clerical workers, all items, sub-groups, and special groups of items as promulgated by the Bureau of Labor Statistics of the United States Department of Labor, using the year 1999 as a base of 100.

In the event that the Consumer Price Index ceases to incorporate a significant number of items, or if a substantial change is made in the method of establishing the CPI, then the CPI shall be adjusted to the figure that would have resulted had no change occurred in the manner of computing the CPI. In the event that the CPI (or a successor or substitute index) is not available, a reliable governmental or other nonpartisan publication, evaluating the relevant information used in determining the CPI, shall be used in lieu of the CPI.

Where required in this Lease, the cumulative increase in the CPI will be calculated by determining the percentage increase in the CPI during the period of time from the base year of 1999 through the year next previous to the year in which the rental amount is to be calculated.

(B) All sums of money to be paid Landlord by Tenant under this lease will be considered Rent. Any payment of Rent made more than fifteen days after it is due will earn interest at the maximum rate allowed by law per annum ("Default Rate").

(C) Tenant and Landlord agree that Landlord has a right to audit the books and records pertaining to property, which must be kept in accordance with generally accepted accounting principles, and the Tenant further agrees to pay for all costs related to the audit if additional rents are found to be due as a result of such audit.

ARTICLE 5

Indemnity - Insurance by Tenant

(A) Tenant covenants with Landlord that Landlord shall not be liable for any damage or liability of any kind or for any damage or injury to persons or property during the term of this Lease from any cause whatsoever by reason of the use, occupancy and enjoyment of the Premises by Tenant or any person thereon or any person holding under Tenant, and Tenant hereby indemnifies and saves harmless Landlord from all liability whatsoever on account of any such damage or injury and from all liens, claims, and demands arising out of the use of the Premises; provided, however, that Tenant shall not be liable for damage or injury occasioned by reason of the negligent acts or omissions of Landlord, its agents, servants, employees or contractors and Landlord agrees to hold Tenant harmless therefrom, including attorneys fees and costs of defense.

(B) Tenant further covenants and agrees that it will carry and maintain, during the entire term hereof, at Tenant's sole cost and expense as Rent, the following types of insurance, in the amount specified and in the form hereinafter provided for:

        (1) Public Liability and Property Damage:  During the term of this Lease, Tenant shall procure and maintain in full force and effect, at its sole cost, bodily injury and property damage liability insurance with coverage limits of not less than $2,000,000.00 combined, and $500,000.00 each occurrence, insuring against any and all liability of the insured with respect to the Premises or arising out of the maintenance, use or occupancy thereof. All such bodily injury liability insurance and property damage liability insurance may be provided under umbrella-type policies maintained by Tenant.

        (2) Fire and Extended Coverage Insurance:  Tenant agrees that it will, during the term hereof, at its sole expense, keep in full force and effect upon the Premises fire insurance with Special Extended Coverage written by a responsible insurance company authorized to do business in the state where the Premises are located in an amount not less than one hundred percent of the replacement cost of the Restaurant, including furniture, fixtures, equipment and any alterations or additions to the Premises whether owned by Tenant or Landlord. All fire and extended coverage insurance which Tenant is obligated to maintain shall be for the benefit of Landlord and Tenant. In the case of loss or damage by fire or other risks insured against, such insurance proceeds shall be paid to and become the property of Landlord, except that Tenant shall be entitled to the replacement cost of Tenant's Property as defined in Article 10 hereof.

        (3) Policy Form:  All policies of insurance provided for herein shall be issued by insurance companies with general policyholder's rating of not less than A and a financial rating of not less than class XII as rated in the most current available Best's Insurance Reports, and shall be qualified to do business in the state in which the Premises are located. All such policies shall be issued in the name of Tenant and shall name Landlord as an additional insured  thereunder, which policies shall be for the mutual and joint benefit and protection of Landlord and Tenant to the extent of their respective interests in the Premises. Certificates of such insurance shall be delivered to Landlord. As often as any such policy shall expire or terminate, renewal or additional policies shall be procured and maintained by Tenant in like manner and to like extent. All policies of insurance shall contain a provision that the company writing said policy will give to Landlord twenty days' notice in writing in advance of any cancellation or lapse or the effective date of any reduction in the amounts of insurance.

        (4) Mutual Waiver of Subrogation:  Landlord and Tenant hereby grant to each other, on behalf of any insurer providing fire and all-risk coverage to either of them covering the Premises or contents of the Premises, a mutual waiver of any right of subrogation any such insurer of one party may acquire against the other by virtue of payments of any loss under such insurance, such a waiver to be effective so long as each is empowered to grant such waiver under the terms of its insurance policy or policies involved without payment of additional premium. Each party will notify the other in the event of cancellation of such provision, and such waiver shall stand mutually terminated as of the date either Landlord or Tenant ceases to be so empowered.

ARTICLE 6

Taxes

(A) Tenant agrees to pay as Rent during the term of this Lease, before any fine, penalty, interest or cost may be added thereto, or becomes due or is imposed by operation of law for the nonpayment thereof, all taxes, assessments or impositions, license and permit fees and other governmental charges, general or special, ordinary or extraordinary, unforeseen and foreseen, of any kind and nature whatsoever, levied and assessed upon the Premises and personal property therein. Upon request Tenant shall provide Landlord with copies of tax receipts or similar evidence of Tenant's payments thereof or if requested by Landlord, shall deliver to Landlord a check made payable to the taxing authority within seven days after Landlord's request but in no event more than thirty days before such payment is due. Taxes for the first fractional year of the Lease Term and for the last year of the term hereof shall be prorated between Landlord and Tenant so that Tenant shall be responsible for the payment of only those taxes accruing during the term of this Lease. With respect to any assessments which may be levied against or upon the Premises or which under the laws then in force may be evidenced by improvements or other bonds, or may be paid in annual installments, only the amount of such annual installment (with appropriate proration for any partial year) and statutory interest shall be included within the computation of the annual taxes and assessments levied against the premises.

(B) Nothing herein contained shall require Tenant to pay income taxes assessed against Landlord, or any capital levy, corporation franchise, excess profits, estate, succession, inheritance or transfer taxes of Landlord.

(C) Landlord agrees that Tenant retains the right, at Tenant's sole cost and expense, to contest the legality or validity of any of the taxes, assessments, levies or other public charges to be paid by Tenant which are not being contested by Landlord, and in the event of any such contest, the failure on the part of Tenant to pay any such tax, assessment, levy or charge promptly when the same becomes due and payable shall not constitute a default hereunder, and Tenant upon final determination of such contest, shall immediately pay and discharge any judgment rendered against it, together with all costs and charges incidental thereto.

(D) Tenant shall also pay when due any sales, use, transaction, rent, excise or other taxes levied or imposed upon, or measured by, amounts payable by Tenant to Landlord under this Lease other than income taxes imposed upon Landlord.

ARTICLE 7

Triple-net Lease

This Lease is a "Triple-net Lease" and requires the Tenant to pay or reimburse Landlord, should Landlord advance such costs and expenses, all costs associated with the premises including but not limited to, all utilities, insurance, taxes, and repairs and maintenance as described in Articles 5, 6, and 13 of this Lease respectively.

ARTICLE 8

Changes, alterations and Additions/Compliance with Laws

(A) Tenant shall have the right at any time and from time to time during the term of this Lease to make non-structural changes, alterations and additions to the interior of the Premises; provided, however, that Tenant shall make no changes or alterations costing more than $100,000.00 in any twelve month period without first obtaining the written consent of Landlord, which consent shall not be unreasonably withheld or delayed, nor shall such changes materially diminish the value of the Premises.

(B) No such change, alteration or addition shall be undertaken or commenced until Tenant shall have procured and paid for all required permits and licenses of all governmental authorities having jurisdiction.

(C) All work done in connection with any change, alteration or addition shall be done with reasonable diligence, in good workmanlike manner and in compliance with all applicable laws and regulations of all governmental authorities having jurisdiction. The cost of any such change, alteration or addition shall be paid or discharged by Tenant so that the Premises at all times shall be free of any and all liens resulting  therefrom, and Tenant's all-risk coverage for the Premises shall be accordingly increased to cover such modifications.

ARTICLE 9

Mechanic's Liens

(A) Tenant shall pay or cause to be paid all costs for work done by it or caused to be done by it on the Premises, and Tenant shall keep the Premises free and clear of all mechanic's liens and other liens due to work done for Tenant or persons claiming under Tenant. Tenant shall indemnify and save Landlord harmless from all liability, loss, damage, costs, attorneys' fees and all other expenses on account of claims of lien of laborers or  materialmen or others for work performed or material or supplies furnished for Tenant or persons claiming under Tenant and Landlord shall have a similar obligation to Tenant for work or material furnished to Landlord.

(B) Within thirty days after the filing of any mechanic's lien or claim of lien, Tenant shall either:

                        1. have discharged the lien from the Premises by payment or by recording a sufficient bond as provided by law, or

                        2. have purchased and delivered to Landlord a title insurance policy insuring Landlord against the lien.

If a final judgment establishing the validity or existence of a claim or lien for any amount is entered,

Tenant shall pay and satisfy the same immediately.

(C) If Tenant shall fail to comply with the requirements of subparagraph (B) above, Landlord shall have the right, but not the obligation, to pay the lien or claim of lien, regardless  of any dispute over its validity, and the amounts so paid, together with reasonable attorneys' fees and any other costs or expenses incurred in connection with the lien, shall be immediately due and payable from Tenant to Landlord.

(D) Should any lien claims be filed against the Premises or any action affecting the title to the Premises be commenced, the party receiving notice of such lien or action shall forthwith give the other party written notice thereof.

(E) All references herein to "Lien" or "mechanic's lien" shall refer only to a mechanic's lien or claim of lien which states that work has been completed on the Premises and payment has not been forthcoming, and shall not include any statutory notice of record which are for the sole purpose of stating that work has commenced on the Premises.

ARTICLE 10

Signs

Tenant shall be allowed to affix and maintain building signs and free standing monument signs on the Premises with Landlord's written approval as approved from time to time by any requisite governmental agency.

ARTICLE 11

Fixtures and Personal Property

All of Tenant's personal property within the Premises, including furniture, furnishings, and equipment and except property installed or attached to the Premises at Tenant's expense, (collectively "Tenant's Property"), shall remain the property of Tenant, and Tenant shall have the right to remove any and all of Tenant's Property at any time during or upon the termination of the term hereof for purposes of replacement or otherwise. Tenant shall maintain adequate equipment to conduct the business permitted in Article 3 and to conform with regulatory requirements concerning equipment. Tenant shall promptly repair any damage occasioned to the Premises by reason of the removal of Tenant's Property. Any of Tenant's property not removed from the Premises before thirty days after the expiration of the initial term will become the property of Landlord, who may dispose of it as Landlord sees fit, but Tenant will pay storage and disposition costs thereof. As required by Landlord, Tenant will remove any fixtures installed by Tenant at the expiration of the Initial Term as the same may be extended, promptly repairing any damage caused by such removal. All remaining fixtures will become Landlord's property.

ARTICLE 12

Assigning, Mortgaging, Subletting

(A) Tenant shall not assign, transfer, mortgage, pledge, hypothecate or encumber this Lease or Tenant's interest in and to the Premises or any part thereof or sublet all or any portion of the Premises without first procuring the written consent of Landlord, which consent shall not be unreasonably withheld or delayed, provided that Tenant shall continue to remain liable to Landlord under this Lease. Any attempted transfer, assignment or subletting without the written consent of Landlord shall be void and confer no rights upon any third person.

(B) Each transfer, assignment or subletting to which there has been consent shall be by an instrument in writing in a form and substance satisfactory in Landlord's reasonable judgment. The transferee, assignee or sublessee shall agree in writing for the benefit of Landlord herein to assume, to be bound by and to perform the terms, covenants and conditions of this Lease to be done, kept and performed by Tenant.

(C) Notwithstanding the foregoing, Tenant shall have the right, subject to lease requirements and only with Landlord's consent, to assign or transfer this Lease or sublet the Premises or any part thereof to a successor corporation of Tenant, to any corporation into which or with which Tenant merges or consolidates, or to any parent, subsidiary or affiliated corporation, including any corporation which controls or is under the control of Tenant, or to any franchisee of Tenant or of any corporation affiliated with Tenant; provided that any such assignee or subtenant shall deliver to Landlord a copy of a document satisfactory in Landlord's reasonable judgment under which such assignee or subtenant agrees to assume and perform all of the terms and conditions of this Lease on  Tenant's part to be performed from and after the effective date of the assignment or sublease, and further provided that Tenant shall guarantee the financial performance of the assignee under this Lease.

ARTICLE 13

Repairs and Maintenance

(A) Subject to the provisions of Article 14, Tenant shall at its own cost and expense, as Rent, keep and maintain the Premises, including the parking area and all grounds surrounding the building on the Premises in good and sanitary order, condition and repair, and make all necessary repairs and replacements to the Premises, including the parking areas and such grounds, including but not limited to roof, pipes, heating, air conditioning and ventilation systems, plumbing system, windowglass, windows, ceilings, interior walls, floors, skylights, doors, cabinets, draperies, carpeting and other floorcoverings, electrical wiring, light fixtures and switches and all other fixtures and all the appliances and appurtenances and all landscaping, lawn maintenance and watering systems belonging thereto. All maintenance, repairs, and replacements shall be done in a first-class manner at least equal in quality to the original work. In the event Tenant shall default in performing maintenance, repairs or replacements, Landlord may (but shall not be so required) perform such maintenance, repairs or replacements for Tenant's account, and the expenses thereof shall constitute and be immediately due and payable as additional rent.

(B) Landlord shall not be obligated to make any repairs, replacements, alterations, additions or improvements in or to the Premises or grounds of the Premises except for any material damage caused by the negligence of Landlord or its agents, servants, employees or contractors. Tenant may, after having given thirty days prior written notice to Landlord, repair any such damage caused by the negligence of Landlord or its agents, servants, employees or contractors, so long as Landlord is not diligently pursuing such repair.

ARTICLE 14

Reconstruction

(A) In the event the Premises shall be destroyed by fire or any other perils, Tenant shall:

1. Within a period of sixty days thereafter, commence repair, reconstruction and restoration of the Premises and prosecute the same diligently to complete in accordance with plans prepared by Tenant and approved by Landlord, which approval shall not be unreasonable withheld or delayed, in which event this Lease shall continue in full force and effect and for such purpose Landlord shall make available to Tenant the proceeds of all insurance received by Landlord with respect to such destruction, or

2. In the event more than 33 1/3 percent of the then replacement value of the Premises is destroyed within the last three years of the Initial Term or during the last three years of any extended term, either Landlord or Tenant (provided it is not then in default hereunder) may at its option elect to terminate this Lease by giving written notice of such termination to the other party within thirty days after such destruction, in which event this Lease shall terminate upon the giving of such notice, and all insurance proceeds attributable to the Premises (except for that portion attributable to Tenant's Property) shall be payable to Landlord and neither party shall thereafter have any further rights or obligations hereunder.

(B) Upon any termination of this Lease under any of the provisions of this Article, the parties shall be released thereby without further obligations to the other party coincident with the surrender of possession of the Premises to Landlord except for items which have theretofore accrued and remain unpaid.

ARTICLE 15

Bankruptcy - Insolvency

Tenant agrees that in the event all or substantially all of Tenant's assets are placed in the hands of a receiver or trustee, and such receivership or trusteeship continues for period of ninety days, or should Tenant make an assignment for the benefit of creditors or be finally adjudicated a bankrupt, or should Tenant institute any proceedings under the Bankruptcy Code as the same now exists or under any amendment thereof which may hereafter be enacted, or under any other act relating to the subject of bankruptcy wherein Tenant seeks to be adjudicated a bankrupt, or to be discharged of its debt, or to effect a plan of liquidation, composition or reorganization, or should any involuntary proceeding not be removed within one hundred twenty days thereafter, then this Lease or any interest in and to the Premises shall not become an asset in any and all rights or remedies of Landlord hereunder or by law provided, it shall be lawful for Landlord to declare the term hereof ended and to reenter the Premises and take possession thereof and remove all persons therefrom, and Tenant shall have no further claim thereon or hereunder.

ARTICLE 16

Defaults/Remedies

Tenant's Default; Landlord's Remedies and Lien

(A) Tenant's Default. This Lease is made upon the condition that Tenant shall punctually and faithfully perform all of the covenants, conditions and agreements to be performed by Tenant as set forth in this Lease. The following shall each be deemed to be an event of default (an "Event of Default"):

        (a) The failure of Tenant to pay the Rent, or any installment thereof, if such failure continues for ten (10) days after such payment is due, without the necessity of Landlord giving Tenant notice of any such failure, which notice Tenant hereby waives:

        (b) Repetition or continuation of any failure to timely pay any Rent, where such failure shall continue or be repeated for two (2) consecutive months, or more than four (4) times in any period of twelve (12) consecutive months (As used in this subsection (b) "timely" shall mean when due, without regard to any grace period as provided in subsection (a) above);

        ( c ) The failure of Tenant to observe or perform any of the covenants, terms or conditions set forth in Article 13 relating to assignments, mortgaging, and subletting) or when such failure continues for a period of fifteen (15) days, without the necessity of Landlord giving Tenant notice of any such failure, which notice Tenant hereby waives;

        (d) The failure of Tenant to observe or perform any other covenant, term or condition set forth in this Lease when said failure continues for a period of fifteen (15) days after written notice thereof from Landlord to Tenant, or if such failure cannot reasonably be cured within fifteen (15) days, when said failure continues for a period of  sixty (60) days after written notice thereof from Landlord to Tenant provided that Tenant commences to cure said failure within such fifteen (15) day period and continues diligently to pursue the curing of the same until completed.

        (e) The commencement of levy, execution, attachment or other process of law upon, on or against the estate created in Tenant hereby; the appointment of a liquidator, receiver, custodian, sequestrator, conservator, examiner, trustee or other similar officer for Tenant, and the continuation of such appointment for a period of thirty (30) days, or the insolvency of Tenant or any assignment by Tenant for the benefit of creditors;

        (f) The commencement of a case by or against Tenant under any insolvency, bankruptcy, creditor adjustment or debtor rehabilitation laws, whether state or federal, or the determination by Tenant to request relief under any insolvency proceeding, including any insolvency bankruptcy, creditor adjustment or debtor rehabilitation laws, whether state or federal. Such commencement or determination by Tenant shall terminate the estate created in Tenant hereby and neither this Lease nor the Premises shall become an asset in any such proceeding;

        (g) Tenant's failure to pay when due and payable, all taxes, assessments and government charges imposed upon it or which it is required to withhold and pay over, without the necessity of Landlord giving Tenant notice of any such failure, which notice Tenant hereby waives;

        (h) The enactment of any rent control law or ordinance which requires reductions in any Rent payable hereunder or which prohibits, or  reduces the amount of, any increase of Rent provided for in this Lease; and

        ( i ) The repetition of any failure to observe or perform any one or more of the covenants, terms or conditions hereof (whether or not any such failure is specified in subsections (a) through (i) above) more than four (4) times, in the aggregate, in any period of twelve (12) consecutive months, without regard to any required notice and/or grace period which may be provided herein. Notwithstanding the foregoing, Landlord shall not be required to give Tenant any notice or period to cure any failure or other circumstance described above before exercising Landlord's remedies hereunder if Landlord in good faith reasonable believes that emergency action is necessary to prevent loss of or injury to persons or property or to prevent the incurrence of a cost or expense which Landlord reasonable believes Tenant W ill be unable or unwilling to pay. In such event Landlord may exercise such remedies and take such other action as it deems reasonable appropriate and shall promptly thereafter give Tenant notice thereof.

(B) No Waiver: Remedies.  Landlord's failure to insist upon strict performance of any covenant, term or condition of this Lease or to exercise any right or remedy shall not be deemed (i) a waiver of any default or breach hereunder so long as the same shall continue to exist, or (ii) a waiver or relinquishment for the future of such performance, right or remedy. Upon an Event of Default above, have the following remedies in addition to all other rights and remedies specified elsewhere in this Lease and which may now or hereafter provided by law or equity, to which Landlord may resort cumulatively, successively or in the alternative:

Landlord may decline to retake possession of the Leased Premises and may sue for the Rent as such Rent becomes due or sue for the present value of the Rent to accrue under this Lease and other damages or remedies to which Landlord may be entitled.

Landlord may elect to retake possession of the Leased Premises and, without initially  reletting the Leased Premises, sue for damages in an amount equal to the present value of the Rent to accrue under this Lease and other damages or remedies to which Landlord may be entitled.

Landlord may retake possession of the Premises,  relet the Premises and sue for damages. During the period of time that Landlord is trying to  relet the Premises, Tenant will be liable for damages in an amount equal to the full Rent. Landlord may sue from time to time for the Rent and/or damages which accrue under this Lease, or may sue for the present value of the total Rent and /or damages which will be due or which may be sustained throughout the remaining term in accordance with the measure of damages set forth below. The election to sue either periodically or for the total amount shall be at the sole option and discretion of Landlord. In any action brought by Landlord to recover Rent and/or damages, Tenant waives to the fullest extent permitted by law any applicable statute of limitations.

Landlord may elect to seek declaratory relief, specific performance and/or injunctive relief (prohibitive or mandatory) with respect to any covenant, term or condition set forth in this Lease.

Landlord may terminate this Lease, re-enter the Property and take possession thereof, remove all persons and property therefrom, and sue for damages, in which event Tenant shall have no further claim or right hereunder.

(C) Provisions Regarding Landlord's Remedies. The following provisions shall apply with respect to Landlord's remedies:

Landlord's re-entry or taking of possession of the Leased Premises shall not be construed as an election to terminate this Lease unless Landlord gives written notice of such termination. Notwithstanding any reletting without termination, Landlord may, at any time after a  reletting and subject to the provisions herein, elect to deem this Lease terminated for any then uncured default. Any re-entry or taking of possession by Landlord shall not affect or diminish the ongoing obligation or liability of Tenant for all Rent and other obligations due and owing under this Lease. Re-entry by the Landlord will not obligate the Landlord to mitigate damages by  reletting, unless otherwise provided by applicable law. Wherever in this Lease Landlord has reserved or is granted the right of re-entry into the Premises, the use of such word is not intended, nor shall it be construed to be limited to its technical legal meaning.

If Landlord re-enters, it may take possession of the Premises, remove all persons and property from the Premises and store such property at Tenant's expense or resort to legal process without being deemed guilty of trespass or becoming liable for any loss or damage occasioned thereby. Tenant agrees that if Landlord stores such property, Landlord shall have a lien thereon pursuant to 42 Okla. Stat. 91.

Landlord may relet the Premises or any part thereof for such term or terms (which may extend beyond the Term), and at such rentals and upon such other terms and conditions as Landlord in its sole discretion deems advisable and such reletting shall not in any way relieve Tenant from the obligations and liabilities under this Lease. Any and all amounts received upon such reletting and all rentals received by Landlord therefrom shall be applied first to any indebtedness owed by Tenant to Landlord other than Rent due hereunder, then to pay any cost and expense of reletting, including brokers' and attorneys' fees and costs of alterations and repairs, then to the Rent due hereunder. If there is any residue, it shall be applied (i) to any other damages incurred by Landlord as a result of Tenant's default, or (ii) if this Lease is not terminated, to any deficiencies between the rentals received and the Rent that may become due hereunder. In such latter event, any funds due Tenant shall be paid at the expiration of the Term. It is understood that said funds shall not draw interest while held by Landlord as security for Tenant's obligations hereunder.

To the extent permitted by law, Tenant waives any right of redemption, re-entry or  repossession and any defense of merger.

Landlord may pursue one or more remedies against Tenant and need not elect its remedy until such time as findings of fact have been made by a judge or jury, whichever is applicable, in a trial court of competent jurisdiction.

The covenant to pay Rent and other amounts hereunder and to perform all obligations hereunder are independent covenants from the other terms and provisions of this Lease and Tenant shall have no right to hold back, offset or fail to pay any such amounts for any  alleged default by Landlord or for any other reason whatsoever.

After any default under this Lease, Landlord may accept any partial payment of the sums then due under this Lease without prejudice to its rights to collect the balance of the sums then due and without prejudice to any other right or remedy Landlord may have.

(D) Damages Upon Termination. If Landlord elects to terminate this Lease, Landlord may recover from Tenant the following damages, in addition to its other remedies:

        (i) Any unpaid Rent which has been earned as of the time of such termination, including interest thereon at the Default Rate; plus

        (ii) The amount by which any unpaid Rent which would have been earned after termination through the date of judgment exceeds the greater of (A) the amount of rent that Tenant proves could have been reasonably obtained by Landlord upon a  reletting of the Leased Premises for such period, or (B) the amount of rent actually received by Landlord for such period, together with interest thereon at the Default Rate; plus

        (iii) The amount by which the Rent which would have accrued for the balance of the Term after the date of judgment exceeds the amount of rent that tenant proves could be reasonably obtained by Landlord for such period, reduced to present value at the Default Rate; plus

        (iv) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result  therefrom including, without limitation, the cost of repairing the Premises, the cost of reletting the Premises (including, without limitation, the cost of remodeling and brokers' fees), and reasonable attorneys' fees; plus

        (v) At Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable state law. Damages shall be due and payable from the date of termination.

(E) Landlord's Self-Help. In addition to Landlord's rights of self-help set forth elsewhere in this Lease, if Tenant at any time fails to perform any of its obligations under this Lease in a manner reasonable satisfactory to Landlord, Landlord shall have the right, but not the obligation, upon giving Tenant at least three (3) days' prior notice of its election to do so (but in the event of any emergency, no prior notice shall be required), to perform such obligations on behalf of and for the account of Tenant and to take all such action to perform such obligations. In such event, Tenant shall reimburse Landlord on demand the costs and expenses incurred by Landlord in connection therewith as additional Rent, with interest thereon from the dates) such costs and expenses are incurred until paid at the Default Rate. The performance by Landlord of any such obligation shall not constitute a waiver of any default by Tenant or a release of  Tenant therefrom.

(F) Landlord's Agents. In exercising any rights hereunder or taking any actions provided for herein, Landlord may act through its employees, agents or independent contractors as authorized by Landlord.

(G) Landlord's Lien. Tenant hereby grants to Landlord a lien and security interest on all property of Tenant now or hereafter placed in or upon Premises including, but not limited to, all fixtures, machinery, equipment, furnishings and other articles of personal property now or hereafter placed in or upon the Leased Premises by or on behalf of Tenant, and all proceeds of the sale or other disposition of such property (collectively, the "Collateral") and such property shall be and remain subject to such lien and security interest of Landlord to secure the payment of all Rent and other sums agreed to be paid by Tenant herein. Said lien and security interest shall be in addition to and cumulative of any Landlord's lien provided by law. This Lease shall constitute a security agreement under the Oklahoma Uniform Commercial Code (the "UCC") so that Landlord shall have and may enforce a security interest in the Collateral. Tenant agrees to execute as  debtor, such financing statements and continuation statements and any further documents as Landlord may now or hereafter reasonably request in order that such security interests) may be and remain perfected pursuant to the UCC. Landlord may at its election at any time file a copy of this Lease as a financing statement. Landlord, as secured party, shall be entitled to all of the rights and remedies afforded a secured party under the UCC, which rights and remedies shall be in addition to and cumulative of any Landlord's liens and rights provided by law or by the other terms and provisions of this Lease.

ARTICLE 17

Condemnation

If any portion of the Premises is taken by appropriation for public use under right of eminent domain, or if a voluntary conveyance is made to the condemning authority in lieu of eminent domain proceedings, Landlord and Tenant agree that their respective rights shall be governed as follows:

(A) In the event that a taking occurs which, in the reasonable judgment of Landlord does not substantially impair Tenant's use of the Premises, Landlord shall be entitled to retain the entire proceeds from the eminent domain proceeding (except for any portion attributable to Tenant's Property as defined in Article 12 hereof or damage to or interruption of Tenant's business), but it shall be obligated to repair or restore the Premises required by any alteration or damage resulting from such taking, and Rent will not abate.

(B) In the event a taking occurs which, in the reasonable judgment of Landlord substantially impairs Tenant's use of the Premises, Tenant shall have the right to terminate this Lease upon thirty days notice to Landlord but notice shall be given no later than the date title vests in the condemning authority.

In no event shall Tenant have any claim against Landlord for any portion of the award paid by the condemning authority, whether for the fee or the leasehold, as a result of such taking or conveyance under threat of condemnation, and Tenant does hereby assign to Landlord all of Tenant's right, title and interest in and to any and all amounts so paid or awarded except for any award made specifically to Tenant by the condemning authority for loss or interruption of Tenant's business or Tenant's Property as defined in Article 11 hereof or for the cost of moving all of the same, or for the unamortized cost of Tenant's leasehold improvements paid for by Tenant and depreciated on a straight-line basis over the term of this Lease.

ARTICLE 18

Quiet Enjoyment - Covenants

Tenant, upon payment of all Rent and observing and keeping all the covenants, agreements and conditions of this Lease on its part to be kept, shall quietly have and enjoy the Premises during the term of this Lease, without hindrance or molestation by anyone claiming by, from, through or under Landlord, subject and subordinate, however, to the exceptions, reservations and conditions of this Lease.

ARTICLE 19

Notices and Payment of Rent

Whenever in this Lease it shall be required or permitted that notice or demand be given or served by either party to this Lease to or on the other parry, such notice or demand shall be given or served by personal delivery or by certified or registered mail, return receipt requested, postage prepaid, addressed as follows:

TO LANDLORD: 

Great Places of Shawnee, L.L.C.
2001 Cambridge Way
Edmond, Oklahoma 73013

WITH COPY TO:

 James D. Kallstrom
1200 Bank of Oklahoma Plaza, 201 Robert S. Kerr Ave 
Oklahoma City, Oklahoma 73102

TO TENANT: 

Eateries, Inc.
1220 S. Santa Fe
Edmond, Oklahoma 73003

WITH COPY TO: 

Tom Golden

                   Hall, Estill, Gable, Golden & Nelson
                   320 S. Boston Avenue, Suite 400
                   Tulsa, Oklahoma 74103-3708;

Every notice, demand, request or communication hereunder which is given by personal delivery shall be deemed given as of the date and time of such personal delivery, and every notice, demand, request or communication hereunder sent by mail in the manner described above shall be deemed to have been given or served upon mailing. All rent and other payments shall be either delivered or sent by first-class mail and paid by Tenant to Landlord at the address above provided. Either party may change its address by giving written notice to the other parties in the manner described in this Article.

ARTICLE 20

Obligations of Successors

The parties hereto agree that all the provisions hereof are to be construed as covenants and agreements as though the words importing such covenants and agreements were used in each separate paragraph hereof, and that all of the provisions hereof shall bind and inure to the benefits of the parties hereto and their respective legal representatives, successors and assigns.

ARTICLE 21

Force Majeure

Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, inability to obtain labor or materials or reasonable substitutes therefor, governmental restrictions, governmental regulations, governmental controls, judicial orders, enemy or hostile governmental action, civil commotion, fire or other casualty, and other causes beyond the reasonable control of the party obligated to perform, shall excuse the performance by such party for a period equal to any such prevention, delay or stoppage, except the obligations imposed with regard to Minimum Annual Rental and other charges to be paid by Tenant pursuant to this Lease. It is expressly agreed that any other time limit provision contained in this Lease shall be extended for the same period of time lost by causes hereinabove set forth.

ARTICLE 22

Holding Over

It is hereby agreed that in the event of Tenant holding over after termination of this Lease with the consent of Landlord, the tenancy thereafter shall be from month to month in the absence of a written agreement to the contrary, and such month-to-month tenancy shall be terminable on thirty days written notice given by either Landlord or Tenant. During such month-to-month tenancy, Tenant shall pay to Landlord rent equal to 125 percent of the monthly payment of Minimum Annual Rental paid in the previous lease year.

ARTICLE 23

Estoppel Certificates / Subordination / Non-Disturbance

At any time and from time to time, Landlord on at least seven days prior notice by tenant, and Tenant, on at least seven days prior request by landlord, will deliver to the party making such request a statement in writing certifying that this Lease is unmodified and in full force and effect (or if there shall have been modifications, that the same is in full force and effect as modified and stating the modifications), any other statements typically found in such  estoppel certificates which Landlord or Tenant may reasonably request and the date to which the rent and any other deposits or charges have been paid and stating whether or not to the best knowledge of the party executing such certificate, the party requesting such statement is in default in the performance of any covenant, agreement or condition contained in this Lease and, if so, specifying each such default of which the executing party may have knowledge. This Lease Agreement shall be subordinate to any mortgage or other hypothecation for security now or in the  future placed on the real property of which the Premises are a part, and to all advances made on such security, and on all renewals, modifications, consolidations, replacements, and extensions of such mortgage or other hypothecation. In spite of such subordination, Tenant's right to quiet possession of the Premises shall not be disturbed if Tenant is not in default and so long as Tenant shall pay the rent and observe and perform all of the provisions of this Lease Agreement, unless this Lease Agreement is otherwise terminated pursuant to its terms.

Tenant also agrees to execute any documents required to effectuate such subordination, and failure to do so within ten (10) days after written demand, does make, constitute, and irrevocably appoint Landlord as Tenant's attorney-in-fact, and in Tenant's name, place, and stead, to do so.

Upon a foreclosure of any mortgage or execution of any deed in lieu of foreclosure, or declaration of Landlord's default under any hypothecation for security and demand by Landlord's successor, Tenant shall attorn to and recognize such successor as Landlord under this Lease Agreement.

ARTICLE 24

Memorandum of Lease

Landlord and Tenant agree that this Lease shall not be recorded but that a Memorandum of Lease describing the Premises and stating the term of this Lease, Tenant's rights of renewal and the addresses of Landlord and Tenant may be executed if desired by either party, and the same may thereafter be recorded by either Landlord or Tenant. The form of Memorandum is attached hereto as Exhibit "B".

ARTICLE 25

Representations and Warranties

The Landlord makes no representations or warranties regarding the condition and/or fitness for a particular use of the Premises or personal property located on the Premises. Tenant has inspected the Premises and such personal property, and accepts the Premises and all such property in "as is condition." Tenant further agrees to make whatever improvements or alterations at it's own expense to the Premises that would be required to operate in compliance with all Federal and state regulatory requirements. Landlord makes no representations or warranties concerning the ADA or any environmental issues.

ARTICLE 26

Waiver

No waiver of any condition or any legal right or remedy shall be implied by the failure to declare a forfeiture or for any other reason, and no waiver of any condition or covenant shall be valid unless it is in writing and signed by the waiving party. No waiver by either party of any covenant or condition herein shall constitute a waiver of any further breach or continuance of the same condition or covenant or any other condition or covenant.

IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease on the day and year first above written.

LANDLORD:

GREAT PLACES OF SHAWNEE, L.L.C.
By:_______________________________
James Burke , Managing Member

TENANT: 

EATERIES, 1NC.
By:_______________________________
Vincent F. Orza, Jr. President

State of Oklahoma    )
                                  ) ss:
County of Oklahoma )

This instrument, was acknowledged before me on August 1, 1999, by James Burke, as Managing Member of Great Places of Shawnee, L.L.C., an Oklahoma limited liability company, on behalf of said limited liability company, as Landlord.

Notary Public
My Commission Expires:

Seal

State of Oklahoma  )
                                ) ss:
County of Oklahoma )

This instrument was acknowledged before me on August 1, 1999, by Vincent F. Orza, Jr., as President of EATERIES, INC., an Oklahoma corporation, on behalf of said corporation as Tenant.

Notary Public
My Commission Expires.

Seal

EX-21.1

Exhibit 21

Eateries, Inc.

Subsidiaries of the Registrant

Name of Subsidiary	Jurisdiction of Incorporation	Percentage of Ownership
Fiesta Restaurants, Inc.	Oklahoma	100.0
Roma Foods, Inc.	Oklahoma	100.0
Garfield Management, Inc.	Oklahoma	100.0

EX-23.1

3:

CONSENT OF INDEPENDENT AUDITORS

As independent public accountants, we hereby consent to the incorporation by reference of our report dated March 1, 2001, included in this Form 10-K for the year ended December 31, 2000, into the Company's previously filed Registration Statement (Form S-8 No. 33-41279).

ARTHUR ANDERSEN LLP

Oklahoma City, Oklahoma

March 6, 2001